Abstract
We present a calibrated general equilibrium model in which collateral constraints substantially amplify and propagate aggregate shocks through their impact on asset prices and capital allocation. Compared to previous studies, this result is more robust and comes with more realistic interest rate dynamics. Agents productivities as workers and entrepreneurs evolve stochastically, creating a mismatch between wealth and skills. Negative shocks to aggregate productivity cause the capital allocation to deteriorate as constrained agents' wealth falls and their number rises. We capture these non-linear dynamics of the wealth distribution and show that amplification is sizable and asymmetric, making recessions sharper than booms.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
