EconPapers    
Economics at your fingertips  
 

Bank liquidity preference and the investment demand constraint

Tarron Khemraj

Economic Modelling, 2013, vol. 33, issue C, 977-990

Abstract: Aggregate bank liquidity preference is postulated to engender an investment demand constraint. This idea is integrated into a stochastic dynamic structural macroeconomic model to study output and inflation fluctuations. The model has two regimes that allows for examining output and inflation adjustments over time given a change in commercial bank mark-up lending rate, quantitative easing and stochastic output shocks. The two financial regimes are: (i) an investment demand constraint regime; and (ii) a bank liquidity trap regime. The time adjustment of output and inflation given a change in mark-up lending rate and monetary easing depends on the financial regime in which the economy finds itself. Adjustments owing to stochastic output shocks do not depend on the financial regime. The nature of the regime is determined by the level of the mark-up lending rate and its strength of adjustment over time relative to the competitive loanable funds rate.

Keywords: Financial friction; Liquidity trap; Quantitative easing; Investment demand (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999313002241
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:977-990

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-09-29
Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:977-990