Chained credit contracts and financial accelerators

Naohisa Hirakata, Nao Sudo, Kozo Ueda

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    2 Citations (Scopus)

    Abstract

    Sufficiently high net worth of financial intermediaries (FIs) is considered a necessary condition for financial and macroeconomic stability. In this paper, we explore why the net worth of FIs is important as compared to that of nonfinancial firms using a dynamic general equilibrium model, in which both FIs and nonfinancial firms rely on costly external debt. We find that an exogenous disruption of the FIs' net worth has a greater aggregate impact than does the same-sized disruption of the nonfinancial firms' net worth. The key reason is that the net worth of the FIs in the United States is small.

    Original languageEnglish
    JournalEconomic Inquiry
    DOIs
    Publication statusAccepted/In press - 2016

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    ASJC Scopus subject areas

    • Economics and Econometrics
    • Business, Management and Accounting(all)

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