Liquidity and Inefficient Investment
We study the role of fiscal policy in a complete markets model where the only friction is the non-pledgeability of human capital. We show that the competitive equilibrium is constrained inefficient, leading to too little risky investment. We also show that fiscal policy following a large negative shock can increase ex ante welfare. Finally, we show that if the government cannot commit to the promised level of fiscal intervention, the ex post optimal fiscal policy will be too small from an ex ante perspective.
|Date of creation:||Jul 2013|
|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.:
- Ricardo J. Caballero & Arvind Krishnamurthy, 2009.
"Global Imbalances and Financial Fragility,"
NBER Working Papers
14688, National Bureau of Economic Research, Inc.
- Holmström, Bengt, 2011.
"Inside and Outside Liquidity,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262015783, June.
- Holmstrom, B & Tirole, J, 1996.
"Private and Public Supply of Liquidity,"
96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Anton Korinek & Olivier Jeanne, 2013.
"Macroprudential Regulation Versus Mopping Up After the Crash,"
2013 Meeting Papers
405, Society for Economic Dynamics.
- Olivier Jeanne & Anton Korinek, 2013. "Macroprudential Regulation Versus Mopping Up After the Crash," NBER Working Papers 18675, National Bureau of Economic Research, Inc.
- Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
- Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
- Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
- Korinek, Anton, 2011.
"Systemic risk-taking: amplification effects, externalities, and regulatory responses,"
Working Paper Series
1345, European Central Bank.
- Anton Korinek, 2011. "Systemic Risk-Taking: Amplification Effects, Externalities, and Regulatory Responses," NFI Working Papers 2011-WP-13, Indiana State University, Scott College of Business, Networks Financial Institute.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Hart, Oliver & Zingales, Luigi, 2011.
"Inefficient Provision of Liquidity,"
CEPR Discussion Papers
8525, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:9537. 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: ()
If references are entirely missing, you can add them using this form.