A macroeconomic model of liquidity crises

Keiichiro Kobayashi and Tomoyuki Nakajima

No 876, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We develop a macroeconomic model in which liquidity plays an essential role in the production process, because firms have a commitment problem regarding factor payments. A liquidity crisis occurs when firms fail to obtain sufficient liquidity, and may be caused either by self-fulfilling beliefs or by fundamental shocks. Our model is consistent with the observation that the decline in output during the Great Recession is mostly attributable to the deterioration in the labor wedge, rather than in productivity. The government's commitment to guarantee bank deposits reduces the possibility of a self-fulfilling crisis, but it increases that of a fundamental crisis.

Keywords: Liquidity crises; Systemic crises; Corporate Liquidity demand; Limited commitment; Debt overhang. (search for similar items in EconPapers)
JEL-codes: E30 G01 G21 (search for similar items in EconPapers)
Pages: 34pages
Date: 2014-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: A macroeconomic model of liquidity crises (2017)
Working Paper: A macroeconomic model of liquidity crises (2014)
Working Paper: A macroeconomic model of liquidity crises (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:876

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