Nobuhiro Kiyotaki, Princeton University

“Credit Horizons” (horario excepcional)

Coautoreado con John Moore y Shengxing Zhang

Abstract: Why do firms borrow largely against near-term revenues? Does this mean they are unable to raise much funding against the long-term horizon? In this paper, we develop a model of credit horizons. A question of particular concern to us is whether persistently low interest rates can reduce aggregate investment and growth. With this in mind, our model is of a small open economy where the world interest rate is taken to be exogenous. We show that a permanent fall in the interest rate can reduce aggregate investment and growth, and even lead to a drop in the welfare of everyone: a Pareto deterioration. We use our framework to examine how credit horizons interact with firm dynamics and the evolution of productivity.