The Interaction between Credit Constraints and Uncertainty Shocks

• DOI: 10.1111/jmcb.13143
• Publication Date: 2024-03-25T06:58:25Z
• Authors: PRATITI CHATTERJEE; DAVID GUNAWAN; ROBERT KOHN
• Keywords: FOS: Economics and business; 8. Economic growth; 0502 economics and business; 05 social sciences; Econometrics (econ.EM); Economics - Econometrics

Abstract This paper proposes a novel link between credit markets and uncertainty shocks. We introduce role for via collateral constraints in an otherwise standard real business cycle (RBC) model show that increase triggers precautionary response interacts with the constraint to generate simultaneous decline output, consumption, investment, wages, hours; feature previous work on shocks without is unable produce flexible‐price environment. also empirically test theoretical predictions unforeseen generates broad measure of activity recessions.