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A macroeconomic model of liquidity crises

Author

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  • Keiichiro Kobayashi

    () (Keio University)

  • Tomoyuki Nakajima

    () (Kyoto University)

Abstract

We develop a macroeconomic model in which liquidity plays an essential role in the production process, because firms have a commitment problem regarding factor payments. A liquidity crisis occurs when firms fail to obtain sufficient liquidity, and may be caused either by self-fulfilling beliefs or by fundamental shocks. Our model is consistent with the observation that the decline in output during the Great Recession is mostly attributable to the deterioration in the labor wedge, rather than in productivity. The government's commitment to guarantee bank deposits reduces the possibility of a self-fulfilling crisis, but it increases that of a fundamental crisis.

Suggested Citation

  • Keiichiro Kobayashi & Tomoyuki Nakajima, 2014. "A macroeconomic model of liquidity crises," KIER Working Papers 876, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:876
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:eecrev:v:100:y:2017:i:c:p:337-363 is not listed on IDEAS
    2. Occhino, Filippo, 2014. "Debt-Overhang Banking Crises," Working Paper 1425, Federal Reserve Bank of Cleveland.
    3. Occhino, Filippo, 2015. "The 2012 Eurozone Crisis and the ECB’s OMT Program: A Debt-Overhang Banking and Sovereign Crisis Interpretation The 2012 Eurozone Crisis and the ECB’s OMT Program: A Debt-Overhang Banking and Sovereig," Working Paper 1509, Federal Reserve Bank of Cleveland.
    4. repec:eee:finsta:v:30:y:2017:i:c:p:192-208 is not listed on IDEAS

    More about this item

    Keywords

    Liquidity crises; Systemic crises; Corporate Liquidity demand; Limited commitment; Debt overhang.;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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