How and why do financial conditions matter for real outcomes? The ‘workhorse model of money and liquidity’ of Kiyotaki and Moore (2008) shows how--with full employment maintained by flexible prices--shifting credit constraints can affect investment and future aggregate supply. We show that,...

When financial markets freeze in fear, borrowing costs for solvent governments may fall towards zero in a flight to quality – but credit-worthy private borrowers can be starved of external funding. In Kiyotaki and Moore (2008), where liquidity crisis is captured by the effective rationing of...

The model of credit-constrained investors developed by Kiyotaki and Moore is used to analyse 'unconventional monetary policy' actions taken in the US and UK. We make two contributions. The first is expositional--to show that their model of a liquidity crisis can be represented as a two-equation...

Germany is generally regarded as the nominal anchor for Europe. Its participation is the sine qua non of EMU. It has been the largest net contributor to EU finances, the leading proponent of greater economic and political union, and the leading example of the virtues of fiscal and monetary...

This paper develops a model where agents learn about the probability of devaluations in a fixed exchange rate regim e. The true probability of devaluation is assumed to be low (or zero) b ut agents are initially unsure about the government's intentions and st art with a high prior belief....

The Stability and Growth Pact, adopted by members of the European Union, imposes tight limits on government deficits. But since the collapse of Communism, Europe has been faced with the problems of economies in transition: and reunified Germany—the leading economy of the EU‐‐‐combines a...

Germany is generally regarded as the nominal anchor for Europe. Its participation is the sine qua non of EMU. It has been the largest net contributor to EU finances, the leading proponent of greater economic and political union, and the leading example of the virtues of fiscal and monetary...