A macroeconomic model of liquidity crises
AbstractWe develop a macroeconomic model in which liquidity plays an essential role in the production process because firms have a commitment problem regarding factor payments. A liquidity crisis occurs when firms fail to obtain sufficient amount of liquidity, and may be caused either by self-fulfilling beliefs or by fundamental shocks. Our model is consistent with the observation that the decline in output during the Great Recession is mostly attributable to the deterioration of the labor wedge rather than that of productivity. The government's commitment to guarantee bank deposits reduces the possibility of a self-fulfilling crisis but increases that of a fundamental crisis.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 876.
Date of creation: Feb 2014
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More information through EDIRC
Liquidity crises; Systemic crises; Corporate liquidity demand; Limited commitment; Debt overhang.;
Find related papers by JEL classification:
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-10 (All new papers)
- NEP-BAN-2013-08-10 (Banking)
- NEP-CBA-2013-08-10 (Central Banking)
- NEP-DGE-2013-08-10 (Dynamic General Equilibrium)
- NEP-MAC-2013-08-10 (Macroeconomics)
- NEP-MON-2013-08-10 (Monetary Economics)
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