Pledgability and Liquidity

Randall Wright and Vaidyanathan (Venky) Venkateswaran
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Vaidyanathan (Venky) Venkateswaran: Penn State University

No 601, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper models the role of assets in facilitating intertemporal exchange: because limited commitment precludes unsecured credit, buyers need to pledge assets as collateral. We develop a general equilibrium model where assets differ in terms of pledgability, and put it to work in applications to finance and macroeconomics. The framework nests standard growth and asset pricing models as special cases. We can price at currency as well as real assets, and analyze how monetary policy affects interest rates, generalizing Fishers approach. We also deliver a Tobin effect of inflation on capital accumulation. We study liquidity differentials along both extensive and intensive margins, making pledgability endogenous, while determining the terms of trade in a general way that captures standard pricing mechanisms as special cases.

Date: 2012
New Economics Papers: this item is included in nep-dge, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:601

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