Liquidity Flows and Fragility of Business Enterprises

Wouter den Haan, Garey Ramey and Joel Watson
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Wouter den Haan: University of Amsterdam
Garey Ramey: UC San Diego
Joel Watson: UC San Diego
Authors registered in the RePEc Author Service: Wouter Denhaan ()

No 1999-07R, University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: This paper develops a macroeconomic model in which investable assets flow to entrepreneurs through long-term relationships with lenders. Low asset flows cause relationships to break up due to insufficient liquidity. Multiple Pareto ranked steady states emerge from complementarity between financial intermediation, reflected by the number of relationships, and households' incentives to provide assets. This complementarity also serves as a mechanism for propagating aggregate shocks. Financial collapse may become inescapable if a shock destroys sufficiently many relationships.

Keywords: investment asset flow (search for similar items in EconPapers)
Date: 2000-12-01
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Related works:
Working Paper: Liquidity Flows and Fragility of Business Enterprises (1999)
Working Paper: Liquidity Flows and Fragility of Business Enterprises (1999)
Working Paper: Liquidity Flows and Fragility of business Enterprises (2000)
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