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Liquidity, Business Cycles and Monetary Policy

Author

Listed:
  • Nobuhiro Kiyotaki

    (London School of Economics)

  • John Moore

    (Edinburgh University and London School of Economics)

Abstract

The paper presents a model of a monetary economy where there are differences in liquidity across assets. Money circulates because it is more liquid than other assets, not because it has any special function. There is a spectrum of returns on assets, reflecting their differences in liquidity. The model is used, first, to investigate how aggregate activity and asset prices fluctuate with shocks to productivity and liquidity, second, to examine what role government policy might have through open market operations that change the mix of assets held by the private sector. With its emphasis on liquidity rather than sticky prices, the model harks back to an earlier interpretation of Keynes (1936), following Tobin (1969).

Suggested Citation

  • Nobuhiro Kiyotaki & John Moore, 2001. "Liquidity, Business Cycles and Monetary Policy," Working Papers 2001-2, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2001-2
    as

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    File URL: http://www.princeton.edu/~kiyotaki/papers/ClarendonLec2.pdf
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    More about this item

    Keywords

    Asset Price; Business Cycle; Cycle; Monetary; Monetary Policy; Money; Open Market; Policy;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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