Replication data for: Overborrowing and Systemic Externalities in the Business Cycle

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Project Citation:

Bianchi, Javier. Replication data for: Overborrowing and Systemic Externalities in the Business Cycle. Nashville, TN: American Economic Association [publisher], 2011. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112484V1

Project Description

Summary: Credit constraints linking debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to overborrow. This externality arises because private agents fail to internalize the financial amplification effects of carrying a large amount of debt when credit constraints bind. We conduct a quantitative analysis of this externality in a two-sector dynamic stochastic general equilibrium (DSGE) model of a small open economy calibrated to emerging markets. Raising the cost of borrowing during tranquil times restores constrained efficiency and significantly reduces the incidence and severity of financial crises. (JEL: E13, E32, E44, F41, G01)

Scope of Project

JEL Classification:
      E13 General Aggregative Models: Neoclassical
      E32 Business Fluctuations; Cycles
      E44 Financial Markets and the Macroeconomy
      F41 Open Economy Macroeconomics
      G01 Financial Crises

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V1 [2019-10-11]

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