A Financial Crisis in a Monetary Economy
We generalize Lagos and Wright's (2005) framework for a monetary economy in a way that there exist two technologies, "high" and "low," for producing the goods in a decentralized matching market. The high technology is more productive than the low technology, while the agents who use the high technology cannot commit in advance to deliver the goods. The lack of commitment makes it infeasible to produce the goods with the high technology if trade is conducted via a simple cash payment. To use the high technology, private valuable assets, e.g., residential property, should be put up as a "hostage" � la Williamson (1983) in the transaction. In this setting, a deterioration in the balance sheet due to a financial crisis leads to the disappearance of residential assets which are not yet put up as collateral, and hinder the usage of the high technology, leading to a decline in aggregate productivity. In this case, monetary injections cannot restore productivity after a financial crisis.
|Date of creation:||Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.rieti.go.jp/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:11009. 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: (NUKATANI Sorahiko)
If references are entirely missing, you can add them using this form.