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Implications of collateral constraints for the term premium

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  • Sungjun Huh
  • Insu Kim

Abstract

This study examines the impact of credit constraints on the term premium in a production economy. To do so, we incorporate the Kiyotaki-Moore collateral constraint and Epstein-Zin-Weil preferences into a medium-scale New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model with nominal rigidity. Our findings are twofold. First, credit constraint, a key ingredient of the financial accelerator channel, has significant effects on the term premium. Second, the loan-to-value ratio has non-linear effects on the term premium.

Suggested Citation

  • Sungjun Huh & Insu Kim, 2024. "Implications of collateral constraints for the term premium," Applied Economics Letters, Taylor & Francis Journals, vol. 31(17), pages 1599-1607, October.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:17:p:1599-1607
    DOI: 10.1080/13504851.2023.2204212
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