Money, Credit, and Business Fluctuations

9008 Sticky Prices , Money , and Business Fluctuations

Can nominal contracts create monetary nonneutrality if they arise endogenously in general equilibrium? Yes, if (1) agents have complete information about the money stock and (2) shocks to the system are purely redistributive and private information, precluding conventional insurance markets. Without contracts, money is neutral toward aggregate quantities. However, risk-sharing between suppliers...

Credit Spreads and Business Cycle Fluctuations

We re-examine the evidence on the relationship between credit spreads and economic activity, by constructing a credit spread index based on an extensive micro-level data set of secondary market prices of outstanding senior unsecured corporate bonds over the 1973–2009 period. Compared with the standard default-risk and other financial indicators, our credit spread index is a robust predictor of ...

Business fluctuations in a credit-network economy

We model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network connections. Credit interlinkages among agents are a source of bankruptcy diffusion: in fact, failure of fulfilling debt commitments would lead to bankruptcy ch...

Money, credit and banking

In monetary models in which agents are subject to trading shocks there is typically an ex-post inefficiency in that some agents are holding idle balances while others are cash constrained. This inefficiency creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. We show that in general financial intermediation improves the allocation and t...

The Credit Money and State Money Approaches