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International Liquidity Rents

Author

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  • Maya Eden

    (Brandeis University)

Abstract

This paper proposes a simple two-country model for studying the macroeconomic implications of a shock to the liquidity of capital. In addition to its standard role as an input of production, physical capital provides some liquidity services, which act as a subsidy for investment. I consider the implications of a shock to the liquidity services from capital, calibrated to match the 2008 recession in the United States. A calibration suggests that the model can quantitatively account for the behavior of various macroeconomic aggregates during the crisis. As the US economy is an exporter of liquidity services, the increase in the liquidity premium has a moderating effect. (Copyright: Elsevier)

Suggested Citation

  • Maya Eden, 2019. "International Liquidity Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 147-159, January.
    • Handle: RePEc:red:issued:18-198
    DOI: 10.1016/j.red.2018.06.003
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    1. Calvo, Guillermo & Coricelli, Fabrizio & Ottonello, Pablo, 2012. "The Labor Market Consequences of Financial Crises With or Without Inflation: Jobless and Wageless Recoveries," CEPR Discussion Papers 9218, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Liquidity creation; 2008 recession;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General

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