I construct a tractable model to evaluate the liquidity shock hypothesis that exogenous shocks to equity market … liquidity are an important cause of the business cycle. After calibrating the model, I find that a large and persistent negative … liquidity shock can generate large drops in investment, employment and output. Contrary to the hypothesis, however, a negative …

This paper integrates limited participation into monetary search theory to analyze the liquidity effects of open market … economy, a shock to bond sales has two distinct liquidity effects. One is the immediate liquidity effect on the bond price and … the nominal interest rate. The other is a liquidity effect in the goods market starting one period later, i.e., the effect …

hypothesis that shocks to equity market liquidity are an independent source of the business cycle. In this paper I construct a … equilibrium. After calibrating the model to the US data, I find that a negative liquidity shock in the equity market can generate …. This response of equity price occurs as long as a negative liquidity shock tightens firms' financing constraints on …