Endogenous Credit Research Articles

Cattle cycles: is there a role for a financial accelerator?

The hypotheses that endogenous credit constraints based on fluctuating asset values and cash flow prolong and accentuate US cattle cycles; and that more diversified cow-calf firms are less affected by this phenomenon are tested. Breeding cattle inventories are an interesting example to study credit constraints because they are among the most cyclical of economic time-series, firms have heterogeneous diversification levels, and they avoid many of the problems with previous investment-cash flow sensitivities studies noted by Kaplan and Zingales. The results are consistent with earlier credit constraint studies, i.e. breeding cattle inventories are sensitive to shifting credit constraint regimes and cow-calf firms with higher diversification levels are less affected by credit constraints.

Cattle cycles: is there a role for a financial accelerator?

The hypotheses that endogenous credit constraints based on fluctuating asset values and cash flow prolong and accentuate US cattle cycles; and that more diversified cow-calf firms are less affected by this phenomenon are tested. Breeding cattle inventories are an interesting example to study credit constraints because they are among the most cyclical of economic time-series, firms have heterogeneous diversification levels, and they avoid many of the problems with previous investment-cash flow sensitivities studies noted by Kaplan and Zingales. The results are consistent with earlier credit constraint studies, i.e. breeding cattle inventories are sensitive to shifting credit constraint regimes and cow-calf firms with higher diversification levels are less affected by credit constraints.

Endogenous money and shareholders' funds in the classical theory of banking

By its nature, bank money is endogenous, but its issuing is risky and presupposes the presence of banks' shareholders' funds. Shareholders' funds give banks the means of dealing with the difficulties involved in the process of money creation and which are inherent to the banking activity: convertibility constraint, credit and liquidity risks. Unlike the Richardian paradigm, Smith's ‘real bill theory’ and Thornton's ‘lender of last resort theory’ point out the functions of shareholder's funds. Therefore their monetary-banking approachs seem more complementary than contradictory. In other respects, the theory of endogenous money and credit introduces risks and capital in the analysis of exchange and lead to questioning the classical market theory constructed on the model of bartering

A Simple Macroeconomic Model with Endogenous Credit Rationing

In this paper, a two-period macroeconomic model, in which output is demand determined, is constructed. In the first period firms may borrow to finance investment, which reduces their marginal costs in the second period; however, since default by borrowers is possible there is an incentive compatibility constraint which may or may not bind. If it binds, there is endogenous credit rationing. Three regimes are possible; in Regime I there is no investment; in Regime 11 there is positive investment without the ICC holding, whereas in the third the condition binds and there is credit rationing. The behaviour of the economy in each of these regimes, and the circumstances under which each of these regimes obtains, are analyzed and some conclusions drawn. The possibility that the model possesses multiple equilibria is considered. Un simple modele macroeconomique avec rationnement endogene du credit

The interdependence of household credit constraints, assets and debts: a two-stage cross-section analysis

The joint determination of household assets, debts and credit constraints is explored using data from the 1983 Survey and Consumer Finances. The suggested six-equation framework allows for substitution and complementarity between different asset and debt types, subject to given household characteristics (including income) and endogenous credit constraints. Two-stage estimates suggest that endogeneity of debts, assets and credit constraints may be important for accurate analysis of households' portfolio choices and excess credit demands.

Notes on Jarsulic’S “Endogenous Credit and Endogenous Business Cycles”

An interesting paper on the theory of economic cycles is Jarsulic (1986). It combines the income distribution changes with the effective demand principle and, with the restrictions of certain parameters, the model generates endogenous fluctuations. In later works (Jarsulic, 1988, 1989), Jarsulic incorporates a credit market and analyzes the conditions that generate real economic fluctuations of financial origin, with distribution remaining unchanged. In spite of theirinterest, the laterpapers are unsatisfactory, due to errors of calculus that invalidate Jarsulic's main results and substantially reduce the usefulness of the model. In subsequent sections we present initially tfie original model and then study the existence and stability conditions of the system's equilibrum. We show the mistakes or the excessive restrictions of the parameters and conclude that, although the model generates endogenous fluctuations, it is only able to do so in a very restricted range. We also evaluate the economic plausibility of the model and the meaning of its results. Finally, in an appendix, we explore the model's behavior for the whole range of possible parameter values.

Reply to González-Calvet and Sánchez-Chóoliz

My 1989 paper, on which the comments of Gonzalez-Calvet and Sdnchez-Ch6liz focus, had a fairly simple goal. It attempted to show that partially endogenous credit and effective demand might combine to produce self-sustained growth cycles. Using a dynamical model of interest and capital stock growth rates, sufficient conditions for self-sustained cycles were derived. Based on these conditions, it was argued that ceteris paribus stronger firn response to cash flow could, in some cases, make cycles more likely. It also was pointed out that increased endogeneity in the supply of credit would make it more likely that the sufficient conditions would be met. As the authors of these comments have recognized, that paper contained some algebra errors. The expression for Tr(J), the trace of the Jacobian of the model, was incorrectly written in the text. The expression for r2, the value of the r = 0 isocline when r = 0, contains an error. Also the labeling in the phase diagram in figure 2 is at variance with the appendix, where the proof of the existence of cycles is stated.' None of these mistakes should have been made. I apologize for any inconvenience they may have caused readers.

The Loans Standard Model of Credit Money

The Loans Standard (LS) model is an example of a credit monetary system. The LS model encapsulates the credit money characteristics which have been identified in the present monetary system, but abstracts away from other aspects such as commodity and fiat money. In the resulting purely credit monetary model, the implications for interest rates, monetary inflation and the structure of monetary institutions are explored. The LS model can be used to help clarify some of the endogenous credit money issues raised by Moore, Wray, Minsky and others.

Nicholas Kaldor and Mainstream Economics: Confrontation or Convergence?

Part 1 Nicholas Kaldor - an overall evaluation: Nicholas Kalder 1908-1986, A.P.Thirwall Nicholas Kaldor remembered, J.K.Galbraith. Part 2 Methodology and basic approach: Kaldor between Hayek and Keynes, or - did Nicky kill capital theory? M.Desai a sweeping new non-substitution theorem - Kaldor's discovery of the Von Neumann input-output model, P.A.Samuelson equilibrium and stability in classical theory, D.J.Harris on the resolution of conflicts by compensation, U.Krause the impact of the division of labour on market relations, T.Scitovsky. Part 3 Saving and distribution: profit squeeze and Keynesian theory, S.A.Marglin and A.Bhaduri post-Keynesian theory of distribution in the long run, N.Salvadori corporate behaviour, valuation ratio and macro-economic analysis, G.Abraham-Frois. Part 4 Money and macroeconomics: the endogeneity of money, H.P.Minsky on the endogeneity of money supply, J.Tobin Marx, Keynes, Kalecki and Kaldor on the rate of interest as a monetary phenomenon, B.J.Moore money - cause or effect? exogenous or endogenous?, P.Davidson change, continuity and originality in Kaldor's monetary theory, M.Lavoie. Part 5 Business cycles: a Keynesian business cycle, R.Day perfect foresight cycles in a Marxian-Keynesian model of accumulation with money, D.K.Foley wandering around the warranted path - dynamic nonlinear solutions to the harrodian knife-edge, A.Shaikh a dynamical macroeconomic growth model wth external financing of firms - a numerical stability analysis, R.Franke and W.Semmler a working model of slump and recovery from disturbances to capital-goods demand in a closed non-monetary economy, E.S.Phelps cyclical growth in a Kaldorian model, P.Skott endogenous credit and endogenous business cycles, M.Jarsulic. Part 6 Theory of growth: change and continuity in Kaldor's thought on growth and distribution, F.Targetti technical change, growth and distribution - a steady state approach to unsteady growth on Kaldorian lines, H.D.Kurz a Kaldorian saving function in a two-sectoral linear growth model, H.Hagemann international debts and deficits - a Kaldor/Pasinetti model, H.Gram. Part 7 Empirical evidence on post-war growth: Kaldor's growth theories - past, present and prospects for the future, R.Boyer and P.Petit Kaldor's macro system - too much cumulation, to few contradictions, D.M.Gordon disembodied technical progress - theory and measurement, S.Nagy. Part 8 Economic policy and economic systems: Nicholas Kaldor as advocate of commodity reserve currency, A.G.Hart Kaldor on international economic policy, S.Dell demand scarcity and supply shortage in capitalism and socialism, E.Nell.

Endogenous Credit and Endogenous Business Cycles

Endogenous Credit and Endogenous Business Cycles