Credit crunch in a model of financial intermediation and occupational choice [An article from: Journal of Macroeconomics]

This digital document is a journal article from Journal of Macroeconomics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In this paper, we introduce a dynamic general equilibrium model with numerous and heterogeneous investment projects and endogenous occupational choice to study a credit crunch. Asset accumulation of assets by households as they face various employment and return risks over a long lifetime determines whether they are entrepreneurs or workers. The origin of a credit crunch may be found in the conservative lending by banks during periods of financial duress and reduced profitability because of capital requirements. Using an example from Canada, monetary policy is shown to be largely ineffective in alleviating the credit crunch, while flexible loan regulation can erase it.