Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-29T01:31:30.048Z Has data issue: false hasContentIssue false
  • English
  • Français

HETEROGENEITY AND REDISTRIBUTION IN FINANCIAL CRISES

Published online by Cambridge University Press:  01 August 2016

Keiichiro Kobayashi  and
Daichi Shirai
Keiichiro Kobayashi*
Affiliation:
Keio University, The Canon Institute for Global Studies and The Research Institute of Economy, Trade and Industry
Daichi Shirai
Affiliation:
The Canon Institute for Global Studies
*
Address correspondence to: Keiichiro Kobayashi, Faculty of Economics, Keio University, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents a simple model of an economy with heterogeneous agents to show that the redistribution of wealth among such agents can play a significant role in the propagation mechanism of financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints, the redistribution reproduces hump-shaped responses for output and labor and procyclicality in observed productivity. In this model, a financial shock generates a persistent and hump-shaped response, whereas a productivity shock does not. Further, the redistribution of wealth significantly amplifies the persistence and hump shape of these responses following a financial shock. This model suggests that redistribution may thus be a key driving force behind the transmission of financial crises.

Keywords

HeterogeneityBorrowing ConstraintRedistribution of WealthLabor Wedge
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 6 , September 2016 , pp. 1527 - 1549
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Altig, David, Christiano, Lawrence, Eichenbaum, Martin, and Linde, Jesper (2011) Firm-specific capital, nominal rigidities and the business cycle. Review of Economic Dynamics 14 (2), 225–247.Google Scholar
Arellano, Cristina, Bai, Yan, and Kehoe, Patrick J. (2012) Financial Frictions and Fluctuations in Volatility. Staff report 466, Federal Reserve Bank of Minneapolis.Google Scholar
Bernanke, Ben S. and Gertler, Mark (1989) Agency costs, net worth, and business fluctuations.’ American Economic Review 79 (1), 14–31.Google Scholar
Bernanke, Ben S., Gertler, Mark, and Gilchrist, Simon (1999) The financial accelerator in a quantitative business cycle framework. In Taylor, John B. and Woodford, Michael (eds.), Handbook of Macroeconomics, Vol. 1: Chap. 21, pp. 1341–1393. Amsterdam: Elsevier.Google Scholar
Buera, Francisco J. and Nicolini, Juan Pablo (2014) Liquidity Traps and Monetary Policy: Managing a Credit Crunch. Working Paper Series WP-2014-14 Federal Reserve Bank of Chicago.Google Scholar
Campbell, Jeffrey R. and Hercowitz, Zvi (2009) Welfare implications of the transition to high household debt. Journal of Monetary Economics 56 (1), 1–16.Google Scholar
Campbell, Jeffrey R. and Hercowitz, Zvi (2011) The Financial Labor Supply Accelerator. Working paper WP-2011-05, Federal Reserve Bank of Chicago.CrossRefGoogle Scholar
Carlstrom, Charles T. and Fuerst, Timothy S. (1997) Agency costs, net worth, and business fluctuations: A computable general equilibrium analysis. American Economic Review 87 (5), 893–910.Google Scholar
Chari, Varadarajan V., Kehoe, Patrick J., and McGrattan, Ellen R. (2007) Business cycle accounting. Econometrica 75 (3), 781–836.Google Scholar
Christiano, Lawrence J., Eichenbaum, Martin, and Evans, Charles L. (1999) Monetary policy shocks: What have we learned and to what end? In Taylor, John B. and Woodford, Michael (eds.) Handbook of Macroeconomics, Vol. 1, Chap. 2, pp. 65–148. Amsterdam: Elsevier.Google Scholar
Christiano, Lawrence J., Eichenbaum, Martin, and Evans, Charles L. (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113 (1), 1–45.Google Scholar
Cordoba, Juan-Carlos and Ripoll, Marla (2004) Credit cycles redux. International Economic Review 45 (4), 1011–1046.CrossRefGoogle Scholar
Jermann, Urban and Quadrini, Vincenzo (2012) Macroeconomic effects of financial shocks. American Economic Review 102 (1), 238–271.Google Scholar
Kehoe, Timothy J. and Prescott, Edward C. (eds.) (2007) Great Depressions of the Twentieth Century. Minneapolis, MN: Federal Reserve Bank of Minneapolis.Google Scholar
Kiyotaki, Nobuhiro (1998) Credit and business cycles. Japanese Economic Review 49 (1), 18–35.Google Scholar
Kiyotaki, Nobuhiro and Moore, John (1997) Credit cycles. Journal of Political Economy 105 (2), 211–248.Google Scholar
Kiyotaki, Nobuhiro and Moore, John (2012) Liquidity, Business Cycles, and Monetary Policy. Working paper 17934, National Bureau of Economic Research.Google Scholar
Kobayashi, Keiichiro and Inaba, Masaru (2006) Business cycle accounting for the Japanese economy. Japan and the World Economy 18 (4), 418–440.Google Scholar
Kobayashi, Keiichiro, Nakajima, Tomoyuki, and Inaba, Masaru (2012) Collateral constraint and news-driven cycles. Macroeconomic Dynamics 16 (5), 752–776.CrossRefGoogle Scholar
Mendoza, Enrique G. (2010) Sudden stops, financial crises, and leverage. American Economic Review 100 (5), 1941–1966.Google Scholar
Mulligan, Casey B. (2002) A Dual Method of Empirically Evaluating Dynamic Competitive Equilibrium Models with Market Distortions, Applied to the Great Depression and World War II. Working paper 8775, National Bureau of Economic Research.Google Scholar
Pescatori, Andrea and Tasci, Murat (2011) Search Frictions and the Labor Wedge. Working paper 1111, Federal Reserve Bank of Cleveland.Google Scholar
Piketty, Thomas (2014) Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press.Google Scholar
Reinhart, Carmen M. and Rogoff, Kenneth S. (2009) This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.Google Scholar
Romer, David (2011) Advanced Macroeconomics, 4th ed. New York: McGraw-Hill.Google Scholar
Shimer, Robert (2009) Convergence in macroeconomics: The labor wedge. American Economic Journal: Macroeconomics 1 (1), 280–297.Google Scholar
Shirai, Daichi (2014) A Note on the Hump-Shaped Output in RBC Model. CIGS Working Paper Series 14-009E, The Canon Institute for Global Studies.Google Scholar
Smets, Frank and Wouters, Raf (2003) An estimated dynamic stochastic general equilibrium model of the Euro area. Journal of the European Economic Association 1 (5), 1123–1175.Google Scholar