NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity

Venky Venkateswaran, Randall Wright

NBER Working Paper No. 19009
Issued in May 2013
NBER Program(s):   ME

When limited commitment hinders unsecured credit, assets help by serving as collateral. We study models where assets differ in pledgability – the extent to which they can be used to secure loans – and hence liquidity. Although many previous analyses of imperfect credit focus on producers, we emphasize consumers. Household debt limits are determined by the cost households incur when assets are seized in the event of default. The framework, which nests standard growth and asset-pricing theory, is calibrated to analyze the effects of monetary policy and financial innovation. We show that inflation can raise output, employment and investment, plus improve housing and stock markets. For the baseline calibration, optimal inflation is positive. Increases in pledgability can generate booms and busts in economic activity, but may still be good for welfare.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19009

Published: Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity, Venky Venkateswaran, Randall Wright. in NBER Macroeconomics Annual 2013, Volume 28, Parker and Woodford. 2014

Users who downloaded this paper also downloaded these:
Gu and Wright w17510 Endogenous Credit Cycles
Venkateswaran and Wright Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity
Tirole Comment on "Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity"
Baker and Wurgler w19018 Do Strict Capital Requirements Raise the Cost of Capital? Banking Regulation and the Low Risk Anomaly
McKay and Reis w19000 The Role of Automatic Stabilizers in the U.S. Business Cycle
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us