Liquidity Shocks and the Business Cycle
This paper studies the properties of an economy subject to random liquidity shocks. As in Kiyotaki and Moore , liquidity shocks affect the ease with which equity can be used as to finance the down-payment for new investment projects. We obtain a liquidity frontier which separates the state-space into two regions (liquidity constrained and unconstrained). In the unconstrained region, the economy behaves according to the dynamics of the standard real business cycle model. Below the frontier, liquidity shocks have the effects of investment shocks. In this region, investment is under-efficient and there is a wedge between the price of equity and the real cost of capital. As with investment shocks, we argue that liquidity shocks are not an important source of business cycle fluctuations in absence of other frictions affecting the labor market.
|Date of creation:||May 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 427-6250 ext. 3841
Web page: http://www.bcrp.gob.pe
More information through EDIRC
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.:
- CAMPANALE, Claudio & CASTRO, Rui & CLEMENTI, Gian Luca, 2009.
"Asset Pricing in a Production Economy with Chew-Dekel Preferences,"
Cahiers de recherche
10-2009, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Claudio Campanale & Rui Castro & Gian Luca Clementi, 2010. "Asset Pricing in a Production Economy with Chew-Dekel Preferences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 379-402, April.
- Claudio Campanale & Rui Castro & Gian Luca Clementi, 2007. "Asset Pricing in a Production Economy with ChewÐDekel Preferences," Working Paper Series 07-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
- Alessandra Fogli & Laura Veldkamp, 2007. "Nature or Nurture? Learning and Female Labor Force Dynamics," Working Papers 07-12, New York University, Leonard N. Stern School of Business, Department of Economics.
- CAMPANALE, Claudio & CASTRO, Rui & CLEMENTI, Gian Luca, 2009. "Asset Pricing in a Production Economy with Chew–Dekel Preferences," Cahiers de recherche 2009-09, Universite de Montreal, Departement de sciences economiques.
- V. V. Chari & Patrick Kehoe & Ellen McGrattan, 2004.
"Business Cycle Accounting,"
122247000000000560, UCLA Department of Economics.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
- V V Chari & Patrick J Kehoe & Ellen R. McGrattan, 2003. "Business Cycle Accounting," Levine's Bibliography 506439000000000421, UCLA Department of Economics.
- V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis.
- Vasco Cúrdia & Michael Woodford, 2009.
"Conventional and unconventional monetary policy,"
404, Federal Reserve Bank of New York.
When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2010-005. 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: (Research Unit)The email address of this maintainer does not seem to be valid anymore. Please ask Research Unit to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.