Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity / Venky Venkateswaran, Randall Wright.

Format:

Book

Author/Creator:

Venkateswaran, Venky.

Contributor:

National Bureau of Economic Research.

Wright, Randall.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19009.

NBER working paper series no. w19009

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

When limited commitment hinders unsecured credit, assets help by serving as collateral. We study models where assets differ in pledgability - the extent to which they can be used to secure loans - and hence liquidity. Although many previous analyses of imperfect credit focus on producers, we emphasize consumers. Household debt limits are determined by the cost households incur when assets are seized in the event of default. The framework, which nests standard growth and asset-pricing theory, is calibrated to analyze the effects of monetary policy and financial innovation. We show that inflation can raise output, employment and investment, plus improve housing and stock markets. For the baseline calibration, optimal inflation is positive. Increases in pledgability can generate booms and busts in economic activity, but may still be good for welfare.

Notes:

Print version record

May 2013.