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Liquidity, Business Cycles, and Monetary Policy

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  • Nobuhiro Kiyotaki
  • John Moore

Abstract

The paper presents a model of a monetary economy where there are differences in liquidity across assets. Money circulates because it is more liquid than other assets, not because it has any special function. There is a spectrum of returns on assets, reflecting their differences in liquidity. The model is used, first, to investigate how aggregate activity and asset prices fluctuate with shocks to productivity and liquidity; second, to examine what role government policy might have through open market operations that change the mix of assets held by the private sector. With its emphasis on liquidity rather than sticky prices, the model harks back to an earlier interpretation of Keynes (1936), following Tobin (1969).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17934.

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Date of creation: Mar 2012
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Handle: RePEc:nbr:nberwo:17934

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  1. Liquidity, Business Cycles, and Monetary Policy
    by Christian Zimmermann in NEP-DGE blog on 2012-04-12 16:50:30
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