When I use a household (saver) -entrepreneur (borrower) model, and the entrepreneur’s collateral constraint is capital different from the house in Iacoviello (2005). I find that an accommodative monetary policy shock causes the real interest rate to rise, lending to fall, household consumption to fall, and aggregate output to rise. This goes against the conventional wisdom (household consumption rises, real interest rates fall and lending rises). What is the reason? Can someone help me?
I find that the income effect is too small. Why: Inflation has led to a large decline in the yield on loans to households, resulting in a negative income effect. How can this be resolved? Is it to add a house or land as collateral? Or how to deal with it?