Collateralized capital and News-driven cycles

Author Name KOBAYASHI Keiichiro  (Senior Fellow, RIETI) /NUTAHARA Kengo  (the University of Tokyo / JSPS)
Creation Date/NO. December 2007 07-E-062
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Kobayashi, Nakajima, and Inaba (2007) show that in the neoclassical business cycle models with collateral constraints, a boom can be generated in response to an optimistic change in expectations on the future state of the economy. They call this business cycle a news-driven cycle. In their models, land is used as collateral, and borrowing for working capital is limited by the value of collateralized land. We simplify their model to one without land. We show that in an economy where capital goods are used as collateral, news-driven cycles can be generated.

Published: Keiichiro Kobayashi and Kengo Nutahara, 2007. "Collateralized capital and news-driven cycles," Economics Bulletin, Vol. 5(18), pp. 1-9.