Liquidity Effects With Long Lived Production Projects

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Liquidity Effects With Long Lived Production Projects

Author Info

Miquel Faig
Sonia Laszlo

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Abstract

This paper explores the effects of monetary shocks on the allocation of factors of production. We analyze these effects when money plays a role in improving the timing of the transactions undertaken by entrepreneurs. Such improvement is facilitated by money? important role in providing liquidity to entrepreneurs. Using a model in which production processes take time to mature and where credit contracts are not enforceable, we show the consequences of monetary shocks for the allocation of resources and the real business cycle. Our analysis reveals that such shocks disrupt the allocation of resources with important effects on total factor productivity.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number faig-00-02.

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Length: 25 pages
Date of creation: 28 Feb 2000
Date of revision:
Handle: RePEc:tor:tecipa:faig-00-02

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Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2000-05-30 (All new papers)
NEP-DGE-2000-05-30 (Dynamic General Equilibrium)
NEP-MON-2000-05-30 (Monetary Economics)

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Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May. [Downloadable!] (restricted)
Other versions:
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Other versions:
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Other versions:
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Other versions:
- Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the Flow of Funds," Working Paper Series, Macroeconomic Issues 94-2, Federal Reserve Bank of Chicago.
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Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May. [Downloadable!] (restricted)

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