Collateral secured loans in a monetary economy

Leo Ferraris () and Makoto Watanabe

Journal of Economic Theory, 2008, vol. 143, issue 1, 405-424

Abstract: This paper presents a microfounded model of money where durable assets serve as a guarantee to repay consumption loans. We study a steady state equilibrium where money and credit coexist. In such an equilibrium, a larger investment in durable capital relaxes the borrowing constraint faced by consumers. We show that the occurrence of over-investment and the behavior of capital accumulation depend on the rate of inflation, the relative risk aversion of agents and the marginal productivity of the capital goods.

Keywords: Collateral; Money; Search (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (67)

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Working Paper: Collateral Secured Loans in a Monetary Economy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:143:y:2008:i:1:p:405-424

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