Journal
JOURNAL OF MONETARY ECONOMICS
Volume 94, Issue -, Pages 27-40Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jmoneco.2017.09.012
Keywords
Corporate liquidity; Collateral values; Asset specificity; Speculation; Financial intermediaries
Categories
Ask authors/readers for more resources
We develop a general equilibrium model to analyze the interaction between two sectors with differing degree of financial friction in the context of liquidity injections (credit expansion). We show that excessive liquidity injection can overheat the sector with lower friction, crowding liquidity out of the sector with higher friction. The crowding-out manifests in a self-reinforcing spiral because of feedback between liquidity inflows, asset prices, and collateral values. The paper highlights the effect of financial frictions on the allocation and distribution of liquidity in an economy, demonstrating misallocation of liquidity (credit) under excessive liquidity injection. (C) 2017 Elsevier B.V. All rights reserved.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available