A Financial Crisis in a Monetary Economy
AbstractWe generalize Lagos and Wright's (2005) framework for a monetary economy in a way that there exist two technologies, "high" and "low," for producing the goods in a decentralized matching market. The high technology is more productive than the low technology, while the agents who use the high technology cannot commit in advance to deliver the goods. The lack of commitment makes it infeasible to produce the goods with the high technology if trade is conducted via a simple cash payment. To use the high technology, private valuable assets, e.g., residential property, should be put up as a "hostage" � la Williamson (1983) in the transaction. In this setting, a deterioration in the balance sheet due to a financial crisis leads to the disappearance of residential assets which are not yet put up as collateral, and hinder the usage of the high technology, leading to a decline in aggregate productivity. In this case, monetary injections cannot restore productivity after a financial crisis.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11009.
Length: 23 pages
Date of creation: Feb 2011
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-CBA-2011-03-12 (Central Banking)
- NEP-DGE-2011-03-12 (Dynamic General Equilibrium)
- NEP-MAC-2011-03-12 (Macroeconomics)
- NEP-MON-2011-03-12 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- A Financial Crisis in a Monetary Economy
by Christian Zimmermann in NEP-DGE blog on 2011-03-26 13:58:15
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