The Welfare Effects of Liquidity Constraints
We analyse the welfare implications of liquidity constraints for households in an overlapping generations model with growth. In a closed economy with exogenous technical progress, liquidity constraints reduce welfare if the economy is dynamically inefficient. But if it is dynamically efficient, some degree of financial repression is optimal in the steady state, even though it hurts some generations in the transition. In an open economy with capital mobility, financial repression of domestic households is never optimal at the national level; but generalized capital mobility leads to an inefficiently low steady-state supply of saving at the world level. With endogenous technical progress, financial repression may increase welfare even along the transition path, thus leading to a Pareto improvement. In this case the optimal degree of financial repression increases as the economy grows.
|Date of creation:||Jan 1995|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- King, Ian & Ferguson, Don, 1993. "Dynamic inefficiency, endogenous growth, and Ponzi games," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 79-104, August.
- Bencivenga, V.R. & Smith, B.D., 1990.
"Deficits, Inflation, And The Banking System In Developing Countries: The Optimal Degree Of Financial Repression,"
RCER Working Papers
214, University of Rochester - Center for Economic Research (RCER).
- Bencivenga, Valerie R & Smith, Bruce D, 1992. "Deficits, Inflation, and the Banking System in Developing Countries: The Optimal Degree of Financial Repression," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 767-90, October.
- Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986.
"Assessing Dynamic Efficiency: Theory and Evidence,"
NBER Working Papers
2097, National Bureau of Economic Research, Inc.
- Andrew Abel & Gregory N. Mankiw & Lawrence H. Summers & Richard Zeckhauser, . "Assessing Dynamic Efficiency: Theory and Evidence," Rodney L. White Center for Financial Research Working Papers 14-88, Wharton School Rodney L. White Center for Financial Research.
- Roubini, Nouriel & Sala-i-Martin, Xavier, 1992.
"Financial repression and economic growth,"
Journal of Development Economics,
Elsevier, vol. 39(1), pages 5-30, July.
- Jappelli, Tullio & Pagano, Marco, 1992.
"Saving, Growth and Liquidity Constraints,"
CEPR Discussion Papers
662, C.E.P.R. Discussion Papers.
- Michael B. Devereux & Gregor W. Smith, 1991.
"International Risk Sharing and Economic Growth,"
829, Queen's University, Department of Economics.
- Aiyagari, S Rao, 1994.
"Uninsured Idiosyncratic Risk and Aggregate Saving,"
The Quarterly Journal of Economics,
MIT Press, vol. 109(3), pages 659-84, August.
- Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
- De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.
- Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
- Azariadis, Costas & Reichlin, Pietro, 1996. "Increasing returns and crowding out," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 847-877, May.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1108. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.