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Collateral fluctuations in a monetary economy

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Author Info

  • Ferraris, Leo
  • Watanabe, Makoto

Abstract

This paper studies economy-wide fluctuations that occur endogenously in the presence of monetary and real assets. Using a standard monetary search model, we consider an economy in which agents can increase consumption, over and above what their liquid monetary asset holdings would allow, pledging real assets as collateral for monetary loans. It is shown that, if the liquidation value of real assets is below full market value, a stable cyclical equilibrium can emerge in consumption and capital around the unstable steady state. We also provide conditions for the existence of cycles of higher order, chaos and sunspot equilibria.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 5 (September)
Pages: 1915-1940

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:5:p:1915-1940

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Money search Collateral Cycles;

References

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  1. Fudenberg, Drew & Diamond, Peter, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Scholarly Articles 3374509, Harvard University Department of Economics.
  2. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  3. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  4. Ricardo Lagos & Guillaume Rocheteau, 2006. "Money and capital as competing media of exchange," Working Paper 0608, Federal Reserve Bank of Cleveland.
  5. Grandmont, Jean-Michel, 2008. "Nonlinear difference equations, bifurcations and chaos: An introduction," Research in Economics, Elsevier, vol. 62(3), pages 122-177, September.
  6. S. Boragan Aruoba & Randall Wright, 2002. "Search, Money and Capital: A Neoclassical Dichotomy, Second Version," PIER Working Paper Archive 03-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Sep 2003.
  7. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  8. Athanasios Geromichalos & Juan M Licari & Jose Suarez-Lledo, 2007. "Monetary Policy and Asset Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 761-779, October.
  9. S. Boragan Aruoba & Randall Wright, 2003. "Search, money, and capital: a neoclassical dichotomy," Proceedings, Federal Reserve Bank of Cleveland, pages 1085-1117.
  10. Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
  11. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  12. Coles, Melvyn G. & Wright, Randall, 1998. "A Dynamic Equilibrium Model of Search, Bargaining, and Money," Journal of Economic Theory, Elsevier, vol. 78(1), pages 32-54, January.
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Citations

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Cited by:
  1. Selcuk, Cemil, 2012. "Seasonal cycles in the housing market," MPRA Paper 36225, University Library of Munich, Germany.
  2. Ryoji Hiraguchi & Keiichiro Kobayashi, 2013. "On the optimality of the Friedman Rule in a New Monetarist Model," CIGS Working Paper Series 13-005E, The Canon Institute for Global Studies.

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