Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity

When limited commitment hinders credit, assets help by serving as collateral. We study models where assets differ in pledgability, and hence liquidity. Previous analyses focus on producers; we emphasize consumers. Household debt limits are determined by having assets seized after default. The framew...

Full description

Saved in:
Bibliographic Details
Published in:NBER macroeconomics annual 2014-01, Vol.28 (1), p.227-270
Main Authors: Venkateswaran, Venky, Wright, Randall
Format: Article
Language:English
Subjects:
Calibration
Capital investments
Credit
Economic activity
Economic models
Employment
Financial investments
Housing
Inflation
Inflation rates
Liquidity
Monetary policy
Studies
Trade
Welfare economics
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:When limited commitment hinders credit, assets help by serving as collateral. We study models where assets differ in pledgability, and hence liquidity. Previous analyses focus on producers; we emphasize consumers. Household debt limits are determined by having assets seized after default. The framework, which nests standard growth and asset-pricing theory, is calibrated to analyze monetary policy and financial innovation. 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.
ISSN:0889-3365
1537-2642
DOI:10.1086/674600