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Fève, Patrick
, Garcia Sanchez, Pablo, Moura, Alban and Pierrard, Olivier
(2019)
Costly default and asymetric real business cycles.
TSE Working Paper, n. 19-1048, Toulouse
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Abstract
We augment a simple Real Business Cycle model with financial intermediaries that may default on their liabilities and a financial friction generating social costs of default. We provide a closed-form solution for the general equilibrium of the economy under specific assumptions, allowing for analytic results and straightforward simulations. Endogenous default generates asymmetric business cycles and our model replicates both the negative skew of GDP and the positive skew of credit spreads found in US data. Stronger financial frictions cause a rise in asymmetry and amplify the welfare costs of default. A Pigouvian tax on financial intermediation mitigates most of these negative effects at the cost of a steady-state distortion.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | November 2019 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Real Business Cycle model, default, financial frictions, asymmetry, skewness. |
| JEL Classification: | E32 - Business Fluctuations; Cycles E44 - Financial Markets and the Macroeconomy G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 14 Nov 2019 10:54 |
| Last Modified: | 13 Mar 2021 12:38 |
| OAI Identifier: | oai:tse-fr.eu:123694 |
| URI: | https://publications.ut-capitole.fr/id/eprint/32905 |
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