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Liquidity Effects With Long Lived Production Projects

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  • Miquel Faig
  • Sonia Laszlo

Abstract

This paper explores the effects of monetary shocks on the allocation of factors of production. We analyze these effects when money plays a role in improving the timing of the transactions undertaken by entrepreneurs. Such improvement is facilitated by money? important role in providing liquidity to entrepreneurs. Using a model in which production processes take time to mature and where credit contracts are not enforceable, we show the consequences of monetary shocks for the allocation of resources and the real business cycle. Our analysis reveals that such shocks disrupt the allocation of resources with important effects on total factor productivity.

Suggested Citation

  • Miquel Faig & Sonia Laszlo, 2000. "Liquidity Effects With Long Lived Production Projects," Working Papers faig-00-02, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:faig-00-02
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    References listed on IDEAS

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    1. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
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    3. Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Liquidity Effects, Monetary Policy, and the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1113-1136, November.
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    6. Fisher, Jonas D M, 1999. "Credit Market Imperfections and the Heterogeneous Response of Firms to Monetary Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 187-211, May.
    7. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-388, May.
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    More about this item

    Keywords

    Liquidity effects; long lived projects;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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