We construct a monetary model of financial crises that can explain two characteristic features of the global financial crisis in 2008/2009, namely, the widespread freeze of asset transactions and a sharp contraction in aggregate output. We assume that the assets, such as real estate, work as...

This paper constructs a model of financial crises that can explain characteristic features of the global financial crisis of 2008-2009, namely, the widespread freezing of asset transactions, the sharp contraction of aggregate output, and a deterioration in the labor wedge. This paper assumes...

We generalize Lagos and Wright's (2005) framework for a monetary economy in a way that there exist two technologies, highʺ and low,ʺ for producing the goods in a decentralized matching market. The high technology is more productive than the low technology, while the agents who use the high...