The Welfare Effects of Liquidity Constraints
AbstractThe authors analyze the welfare implications of liquidity constraints for households in an overlapping generations model with growth. In a closed economy with exogenous technical progress, liquidity constraints reduce welfare if the economy is dynamically inefficient. But, if it is dynamically efficient, some degree of financial repression is required to maximize steady-state utility, even though some generations are hurt in the transition. With endogenous technical progress, financial repression may increase welfare even along the transition path, thus leading to a Pareto improvement. In this case, the optimal degree of financial repression increases as the economy grows. Copyright 1999 by Royal Economic Society.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 51 (1999)
Issue (Month): 3 (July)
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Other versions of this item:
- Tullio Jappelli & Marco Pagano, 1998. "The Welfare Effects of Liquidity Constraints," CSEF Working Papers 13, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Jappelli, Tullio & Pagano, Marco, 1995. "The Welfare Effects of Liquidity Constraints," CEPR Discussion Papers 1108, C.E.P.R. Discussion Papers.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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