Macroeconomic Implications of Credit Constraints Open Access

Buyukkarabacak, Berrak (2008)

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Private credit plays a critical role in the real economy. The provision of credit to businesses reduces the need for internal finance and promotes investment, for households it reduces consumption volatility. While both businesses and households rely on bank credit, prior literature emphasizes production and investment and does not distinguish between household and business credit. The effects of credit conditions need not be confined to firms and capital spending but may arise through household spending decisions as well. Certainly, the distinction becomes important when the credit conditions for the two types of credit have distinct effects on the real economy. This dissertation differentiates between household and business credit and studies the implications of the two types of credit, from both theoretical and empirical points of views. The first chapter examines the impact of international and domestic credit market frictions on the relative consumption volatility differential between developed and emerging countries by modeling household and business credit effects explicitly. The second chapter uses a unique data set for household and business credit and studies the effects of household and business credit on the trade balance. The third chapter analyzes the link between financial crises and private credit decomposition.

Table of Contents

Essay 1: Consumption Volatility in Emerging Economics: Credit Constraints, Collateral, and Income Distribution

1.1 Introduction

1.2 Consumption Volatility and Features of Emerging Economies

1.3 The Model

1.3.1 Model 1: Real Estate and Capital as Collateral

1.3.2 Model 2: Labor Income and Output as Collateral

1.4 Quantitative Analysis

1.4.1 Calibration

1.4.2 Driving Processes Productivity Shock World Interest Rate Shock Credit Shocks

1.5 Results

1.5.1 Accounting for the RCV Differential International Credit Constraints Income Distribution

1.5.2 Variance Decomposition

1.6 Concluding Remarks


Essay 2: Studying the Effects of Household and Firm Credit on the

Trade Balance: The Composition of Funds Matters
2.1 Introduction

2.2 The Model

2.2.1 Households

2.2.2 Production

2.3 Sample Selection and Data Description

2.4 Model Specification and Estimation Method

2.4.1 Model Specification

2.4.2 Estimation Method

2.5 Results

2.5.1 Model Estimation

2.5.2 Comparative Statics and Estimation

2.6 Conclusions



Essay 3: Credit Expansions and Financial Crises: The Roles of Household and Firm Credit

3.1 Introduction

3.2 Credit Expansions and Financial Crises: Theoretical Background

and Review of Empirical Evidence

Table of Contents: Tables
Table 1.1: Relative Volatility of Consumption in Emerging and

Developed Economies
Table 1.2: Calibrated Parameters

Table 1.3: Comparison of Domestic Real Interest Rates with World

Interest Rates
Table 1.4a: The RCV without International Credit Constraints

Table 1.4b: The RCV with Constant International Credit Constraints

Table 1.4c: The RCV with Time-Varying International Credit

Table 1.5: Accounting for the RCV Differential

Table 1.6: Income Distribution and the RCV

Table 1.7a: Variance Decompositions under Real Estate Collateral

Table 1.7b: Variance Decompositions under Labor Income Collateral

Table 1.8: Glossary of Symbols

Table 2.1: Stock Market Size and Share of Household Credit in Total

Private Credit
Table 2.2a: Household Credit (%GDP)

Table 2.2b: Business Credit (%GDP)


Figure 1.1: Foreign Liabilities and Total Assets of the Banking

Figure 1.2: Impulse Responses of Selected Variables to a Positive

Productivity Shock in a Standard Open-Economy Model
Figure 1.3: Impulse Responses of Selected Variables to Productivity

Shock in Real Estate Collateral Regime
Figure 1.4: Impulse Responses of Selected Variables to Productivity

Shock in Labor Income Collateral Regime
Figure 1.5: Impulse Responses of Selected Variables to Credit Shock in Labor Income Collateral Regime

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