This paper addresses the "rate of return" puzzle of monetary theory. Similarly to the legal restrictions theory of the demand for money, we assume that Government bonds are subject to a minimum purchase requirement. Differently from this theory, however, we assume that intermediaries, when...

We propose a model in which money performs an essential role in the process of exchange, despite the presence of a multilateral clearing house. Agents are assumed to be anonymous and unable to make binding commitments. The clearing house can detect deviations but it cannot identify the...

This paper presents a model economy with endogenous credit constraints and endogenous growth, in which agents face a trade-off between investing resources to improve the pledgeability of collateral assets and the accumulation of human capital. The model generates both growth miracles and...

In emerging countries, credit market liberalization is often motivated with the financial deepening generated by the entry of foreign financial institutions. However, a gloomier view warns that credit market liberalization can benefit internationally active, export-oriented businesses at the...

A long standing issue in monetary theory is whether money and interest bearing debt may both play a beneficial role in facilitating transactions. This paper identifies in the misallocation of liquidity a key element to provide an answer. In a search model of money, we show that there exists an...

We examine a theoretical model of liquidity with three assets - money, government bonds and equity - that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the...