Macroeconomic Implications of Credit Constraints Open Access

Abstract

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 1.4.2.1 Productivity Shock 1.4.2.2 World Interest Rate Shock 1.4.2.3 Credit Shocks 1.5 Results 1.5.1 Accounting for the RCV Differential 1.5.1.1 International Credit Constraints 1.5.1.2 Income Distribution 1.5.2 Variance Decomposition 1.6 Concluding Remarks Appendix 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 Appendix References 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 Contents Page 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 Constraints 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 Regime Table 1.7b: Variance Decompositions under Labor Income Collateral Regime 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) Figures Figure 1.1: Foreign Liabilities and Total Assets of the Banking System 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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School	Laney Graduate School
Department	Economics
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Economics, General
Keyword	Consumption Volatility Credit Constraints Business Credit Household Credit
Committee Chair / Thesis Advisor	Krause, Stefan, Emory University
Committee Members	Byrd, M Daniel, Emory University Chirinko, Robert, Emory University Liu, Zheng, Emory University

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