Adam Smith Business School

Professor Nobuhiro Kiyotaki, Princeton University

'Credit Horizons' (co-authored by J. Moore & S. Zhang)
Thursday 28 April, 3pm - 4.30pm
Zoom online seminar

Register at business-events@glasgow.ac.uk

Abstract

Entrepreneurs appear to raise funds largely against their near-term revenues, even when their investment has a longer horizon. To explain why, we develop a model of credit horizons in which the inalienable human capital of an entrepreneur-cum-engineer is essential for constructing and then maintaining a production plant. The further distant into the future, the larger the fraction of the revenue flow that can be attributed to the engineer's cumulative maintenance. Looking ahead from the time of investment, we see that because the engineer cannot precommit to work for less than their marginal contribution to (future) production, as time passes more of the surplus goes (has effectively already gone) to them - and concomitantly less goes to financial claimants. Hence the investing engineer's fundraising capacity is largely governed by revenues in the near horizon. We use our framework to examine how credit horizons interact with plant dynamics and the evolution of productivity. We also show that a permanent fall in the interest rate in small open economy can lead to a temporary boom followed by slower growth in the long run.

Biography

Nobuhiro Kiyotaki is the Harold H. Helm '20 Professor of Economics and Banking at Princeton University. He received his Ph.D. from Harvard University in 1985. He has published widely in macroeconomics and monetary economics, including "Monopolistic Competition and the Effects of Aggregate Demand" with Olivier Blanchard in 1987, "On Money as a Medium of Exchange" with Randall Wright in 1989, "Credit Cycles" with John Moore in 1997, “Banking, Liquidity and Bank Runs in an Infinite Horizon Economy” with Mark Gertler in 2015, and “Liquidity, Business Cycles and Monetary Policy” with John Moore in 2019. Kiyotaki also worked at the University of Wisconsin-Madison, the University of Minnesota and the London School of Economics and Political Science before Princeton. Among professional honors, Kiyotaki received the 1999 EEA Yrjo Jahnsson Award, the 2010 Stephen A. Ross Prize in Financial Economics together with John Moore, and 2021 the BBVA Foundation Frontiers of Knowledge Award in the Economics, Finance and Business Management with Ben Bernanke, Mark Gertler and John Moore.

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Further information: business-events@glasgow.ac.uk 

First published: 5 April 2022