Report
Credit Enforcement Cycles
Policy File
Federal Reserve Bank of Philadelphia
01 Jul 2017
Abstract
Empirical evidence suggests that widespread financial distress, by disrupting enforcement of credit contracts, can be self-propagatory and adversely affect the supply of credit. The authors propose a unifying theory that models the interplay between enforcement, borrower default decisions, and the provision of credit. The central tenets of their framework are the presence of capacity constrained enforcement and borrower heterogeneity. The authors show that, despite heterogeneity, borrowers tend to coordinate their default choices, leading to fragility and to credit rationing. Their model provides a rationale for the comovement of enforcement, default rates and credit seen in the data.
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Details
- Title
- Credit Enforcement Cycles
- Creators
- Lukasz DrozdRicardo Serrano-Padial
- Publication Details
- Policy File
- Publisher
- Federal Reserve Bank of Philadelphia
- Resource Type
- Report
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Identifiers
- 991021807100304721