Credit cycles

Nobuhiro Kiyotaki, John Moore

    Research output: Contribution to journalArticlepeer-review

    3718 Citations (Scopus)


    We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production, but they also serve as collateral for loans. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. We show that small, temporary shocks to technology or income distribution can generate large, persistent fluctuations in output and asset prices.

    Original languageEnglish
    Pages (from-to)211-248
    Number of pages38
    JournalJournal of Political Economy
    Issue number2
    Publication statusPublished - Apr 1997


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