Working Paper: NBER ID: w17934
Authors: Nobuhiro Kiyotaki; John Moore
Abstract: 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 model is used, first, to investigate how aggregate activity and asset prices fluctuate with shocks to productivity and liquidity; second, to examine what role government policy might have through open market operations that change the mix of assets held by the private sector. With its emphasis on liquidity rather than sticky prices, the model harks back to an earlier interpretation of Keynes (1936), following Tobin (1969).
Keywords: Liquidity; Business Cycles; Monetary Policy
JEL Codes: E10; E44; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity (E41) | economic activity (E20) |
| liquidity (E41) | asset prices (G19) |
| productivity shocks (O49) | economic activity (E20) |
| productivity shocks (O49) | asset prices (G19) |
| liquidity shocks (E44) | economic activity (E20) |
| liquidity shocks (E44) | asset prices (G19) |