International Liquidity Rents

Maya Eden ()

Review of Economic Dynamics, 2019, vol. 31, 147-159

Abstract: This paper proposes a simple two-country model for studying the macroeconomic implications of a shock to the liquidity of capital. In addition to its standard role as an input of production, physical capital provides some liquidity services, which act as a subsidy for investment. I consider the implications of a shock to the liquidity services from capital, calibrated to match the 2008 recession in the United States. A calibration suggests that the model can quantitatively account for the behavior of various macroeconomic aggregates during the crisis. As the US economy is an exporter of liquidity services, the increase in the liquidity premium has a moderating effect. (Copyright: Elsevier)

Keywords: Liquidity creation; 2008 recession (search for similar items in EconPapers)
JEL-codes: E44 F30 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.red.2018.06.003

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