Does collateral pricing matter for news-driven cycles?

Orientador(a): Eduardo Zilberman

Co-orientador(a): Carlos Viana de Carvalho

Asset prices are strongly influenced by expectations. Therefore, in the presence of collateralized debt, credit availability will depend on those expectations. We develop a simple RBC model, with credit constraints, to formalize this intuition. We then build a more complex model, fit for quantitative analysis, in order to study the relevance of the mechanism. Our main finding is that the credit constraint does not significantly affect the economy if we allow the firms to substitute between equity and debt. This result holds even if the substitution is subjected to severe frictions.