Liquidity Constraints in a Monetary Economy

Speaker:  Leo Ferraris - Carlos III, Madrid
  Wednesday, May 5, 2010 at 12:30 PM Biblioteca DSE, Palazzina 32 ex caserma Passalacqua

This paper presents a microfounded model of money with a consumption and an investment
market. We consider an economy in which only part of the investment returns
can be pledged. A liquidity constraint arises when the pledgeable part of the returns are
not enough to pay for investment costs. We show that when the liquidity constraint is
binding, agents may make a cash downpayment and money can perform two roles – as a
provider of liquidity services and exchange services. The liquidity constraint constitutes a
channel though which under-investment occurs even at low inflation rates.

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paper  pdfpdf (it, 407 KB, 01/04/10)

Programme Director
Angelo Zago

Publication date
March 25, 2010

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