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A macroeconomic model of liquidity crises

Keiichiro Kobayashi and Tomoyuki Nakajima ()

No 22, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: We develop a macroeconomic model in which liquidity plays an essential role in the production process, because _rms have a commitment problem regarding factor payments. A liquidity crisis occurs when _rms fail to obtain su_cient liquidity, and may be caused either by self-ful_lling 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: 35 pages
Date: 2014-03
New Economics Papers: this item is included in nep-dge and nep-pbe
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Related works:
Working Paper: A macroeconomic model of liquidity crises (2017) Downloads
Working Paper: A macroeconomic model of liquidity crises (2014) Downloads
Working Paper: A macroeconomic model of liquidity crises (2014) Downloads
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