Indexed Debt Contracts and the Financial Accelerator

45 Pages Posted: 10 Aug 2011

See all articles by Charles T. Carlstrom

Charles T. Carlstrom

Federal Reserve Bank of Cleveland

Timothy S. Fuerst

University of Notre Dame

Matthias Paustian

Bank of England

Date Written: August 8, 2011

Abstract

This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the business cycle properties of the model are altered under this level of indexation.

Keywords: Credit market frictions, Indexation

JEL Classification: E22, E32, E44

Suggested Citation

Carlstrom, Charles T. and Fuerst, Timothy S. and Paustian, Matthias, Indexed Debt Contracts and the Financial Accelerator (August 8, 2011). FRB of Cleveland Working Paper No. 11-17, Available at SSRN: https://ssrn.com/abstract=1906761 or http://dx.doi.org/10.2139/ssrn.1906761

Charles T. Carlstrom

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States
216-579-2294 (Phone)
216-579-3050 (Fax)

Timothy S. Fuerst (Contact Author)

University of Notre Dame ( email )

Notre Dame, IN 46556
United States

Matthias Paustian

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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