land as an example of a collateralizable asset. Thus land plays two distinct roles in the model: (i) it is a productive input, and (ii) it also serves as collateral for debt. Hence, impatient agents must provide real estate as collateral if they wish to borrow. If for any reason the value of real estate declines, so does the amount of debt they can acquire. This feeds back into the real estate market, driving the price of land down further (thus, the borrowing decisions of the impatient agents are strategic complements). This positive feedback is what amplifies economic fluctuations in the model. The paper also analyzes cases where debt contracts are set only in nominal terms or where contracts can be set in real terms, and considers the differences between the cases. Extensions The original paper of Kiyotaki and Moore was theoretical in nature, and made little attempt to evaluate the quantitative relevance of their mechanism for actual economies. In 2005, Kiyotaki's student Matteo Iacoviello embedded the Kiyotaki-Moore mechanism inside a standard New Keynesian general equilibrium macroeconomic model. For realism, Iacoviello assumed that the collateralizable form of capital corresponds to real estate, and compared the predictions of his model with observed fluctuations of real housing prices in the United States. References New Keynesian economics Economics models Business cycle theories