The Elastic Provision of Liquidity by Private Agents
AbstractI study a model of entrepreneurial investment in which investment projects are heterogeneous with respect to their exposure to an aggregate liquidity shock. A firm that is affected by the shock will mitigate its exposure by purchasing claims issued by a firm that is not. Liabilities of the unaffected firm may earn a liquidity premium due to their fungibility; and, because they are backed by productive investment, their supply is elastic to the demand. The segmentation implies that an aggregate liquidity shock has different consequences across sectors. The unaffected firm plays a role like that of a bank by supplying liquidity to other firms; this mechanism recalls the “real bills” doctrine of classical monetary theory.
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Bibliographic InfoPaper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1195.
Length: 40 pages
Date of creation: Aug 2006
Date of revision:
Liquidity ; Money Supply Elasticity;
Other versions of this item:
- Drew Saunders, 2009. "The Elastic Provision of Liquidity by Private Agents," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1423-1451, October.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-23 (All new papers)
- NEP-FMK-2006-09-23 (Financial Markets)
- NEP-MAC-2006-09-23 (Macroeconomics)
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