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Coordination, Fragility, High-Powered Money, and the Liquidity Trap: A "Tobinesque" Parable

Author

Listed:
  • John Bryant

    (Department of Economics, Rice University
    CentER, Tilborg University)

Abstract

This paper provides a simple model of fragility in which recession, triggered by demand for high-powered money, generates a liquidity trap. Moreover, in this liquidity trap parable, it is its assured store of value that is the critical attribute of high-powered money and not, perhaps, "liquidity services" per se at all. Thus, a rather "Tobinesque" liquidity trap is portrayed. The crucial ingredients in the model are simple, standard forms of production complementarities.

Suggested Citation

  • John Bryant, 2005. "Coordination, Fragility, High-Powered Money, and the Liquidity Trap: A "Tobinesque" Parable," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 97-106, Winter.
    • Handle: RePEc:eej:eeconj:v:31:y:2005:i:1:p:97-106
    as

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume31/V31N1P97_106.pdf
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    References listed on IDEAS

    as
    1. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521578967, January.
    2. Evans, Geroge W & Honkapohja, Seppo & Romer, Paul, 1998. "Growth Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 495-515, June.
    3. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    4. James J. McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," Staff Reports 85, Federal Reserve Bank of New York.
    5. John Bryant, 1983. "A Simple Rational Expectations Keynes-type Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 525-528.
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    More about this item

    Keywords

    Money; Recession;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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