Liquidity, Business Cycles, and Monetary Policy

Nobuhiro Kiyotaki and John Moore

Journal of Political Economy, 2019, vol. 127, issue 6, 2926 - 2966

Abstract: This paper presents a model of a monetary economy where there are differences in liquidity across assets. Money circulates because it is more liquid than other assets, not because it has any special function. The model is used to investigate how aggregate activity and asset prices fluctuate with shocks to productivity and liquidity and to examine what role government policy might have through open-market operations that change the mix of assets held by the private sector.

Date: 2019
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