This paper is a theoretical study into how credit constraints intereact with aggregate economic activity over the business cycle. We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable...

The paper presents a model of a monetary economy where there are differences in liquidity across assets. Money circulates because it is more liquid than other assets, not because it has any special function. There is a spectrum of returns on assets, reflecting their differences in liquidity. The...

We develop a framework for modelling differences in liquidity across assets in order to examine the interactions between asset prices, liquidity premia and aggregate activity. In so doing, we want to find out what role government policy might have through open market operations that change the...

This paper is a theoretical study into how credit constraints interact with aggregate economic activity over the business cycle. We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets...

The authors construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production but they also serve as collateral for loans. The dynamic...

We broadly define liquid assets, or monetary assets, as any asset that can be readily sold in the market and can be held by a number of people in succession before maturity. We ask in what environment is the circulation of liquid assets essential for the smooth running of the economy. By...