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Coordination, Fragility, High-Powered Money, and the Liquidity Trap: A "Tobinesque" Parable

  • John Bryant

    ()

    (Department of Economics, Rice University
    CentER, Tilborg University)

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    This paper provides a simple model of fragility in which recession, triggered by demand for high-powered money, generates a liquidity trap. Moreover, in this liquidity trap parable, it is its assured store of value that is the critical attribute of high-powered money and not, perhaps, "liquidity services" per se at all. Thus, a rather "Tobinesque" liquidity trap is portrayed. The crucial ingredients in the model are simple, standard forms of production complementarities.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume31/V31N1P97_106.pdf
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    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 31 (2005)
    Issue (Month): 1 (Winter)
    Pages: 97-106

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    Handle: RePEc:eej:eeconj:v:31:y:2005:i:1:p:97-106
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    1. George Evans & Seppo Honkapohja & Paul Romer, 1996. "Growth Cycles," NBER Working Papers 5659, National Bureau of Economic Research, Inc.
    2. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 525-28, August.
    3. James McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," Working Paper 99-11, Federal Reserve Bank of Atlanta.
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