TY - JOUR
T1 - Aggregate implications of a credit crunch
T2 - The importance of heterogeneity
AU - Buera, Francisco J.
AU - Moll, Benjamin
PY - 2015
Y1 - 2015
N2 - We take an off-the-shelf model with financial frictions and heterogeneity, and study the mapping from a credit crunch, modeled as a shock to collateral constraints, to simple aggregate wedges. We study three variants of this model that only differ in the form of underlying heterogeneity. We find that in all three model variants a credit crunch shows up as a different wedge: efficiency, investment, and labor wedges. Furthermore, all three model variants have an undistorted Euler equation for the aggregate of firm owners. These results highlight the limitations of using representative agent models to identify sources of business cycle fluctuations.
AB - We take an off-the-shelf model with financial frictions and heterogeneity, and study the mapping from a credit crunch, modeled as a shock to collateral constraints, to simple aggregate wedges. We study three variants of this model that only differ in the form of underlying heterogeneity. We find that in all three model variants a credit crunch shows up as a different wedge: efficiency, investment, and labor wedges. Furthermore, all three model variants have an undistorted Euler equation for the aggregate of firm owners. These results highlight the limitations of using representative agent models to identify sources of business cycle fluctuations.
UR - https://www.scopus.com/pages/publications/84936865419
U2 - 10.1257/mac.20130212
DO - 10.1257/mac.20130212
M3 - Article
AN - SCOPUS:84936865419
SN - 1945-7707
VL - 7
SP - 1
EP - 42
JO - American Economic Journal: Macroeconomics
JF - American Economic Journal: Macroeconomics
IS - 3
ER -