Pledgability and Liquidity
This paper models the role of assets in facilitating intertemporal exchange: because limited commitment precludes unsecured credit, buyers need to pledge assets as collateral. We develop a general equilibrium model where assets differ in terms of pledgability, and put it to work in applications to finance and macroeconomics. The framework nests standard growth and asset pricing models as special cases. We can price at currency as well as real assets, and analyze how monetary policy affects interest rates, generalizing Fishers approach. We also deliver a Tobin effect of inflation on capital accumulation. We study liquidity differentials along both extensive and intensive margins, making pledgability endogenous, while determining the terms of trade in a general way that captures standard pricing mechanisms as special cases.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Ricardo Lagos & Randall Wright, 2005.
"A Unified Framework for Monetary Theory and Policy Analysis,"
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"Asset prices and liquidity in an exchange economy,"
373, Federal Reserve Bank of Minneapolis.
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