Inefficient Credit Cycles
Time：10:00am - 11:30am, May 28th, 2021
Venue：Room 359S, Overseas Exchange Center, Peking University
This paper formalizes a macroeconomic model of inefficient credit cycles in a continuous time dynamic contract setting. We show that under moral hazard, the optimal competitive contract between households and entrepreneurs results in socially excessive debt expansion during booms and insufficient credit provision during recessions. Inefficient credit fluctuations generate inefficient waves of investments. Because the inefficiencies flip signs over the business cycle, prudential regulations may exacerbate under-borrowing in recessions, and stimulus measures may aggravate overborrowing in booms, sowing the seeds of the next crisis. A well-designed intervention admits a state-dependent, sufficient-statistic-like representation in terms of measurable variables.
Professor Sichuang Xu is an Assistant Professor of Economics in The Chinese University of Hong Kong, Shenzhen. His research interests include macroeconomics, financial economics and international economics. Professor Xu’s research has been published in Journal of International Economics. He earned his doctor degree in Economics from Hong Kong University of Science and Technology.