This paper presents a microfounded model of money where durable assets serve as a guarantee to repay consumption loans. We study a steady state equilibrium where money and credit coexist. In such an equi- librium, a larger investment in durable capital relaxes the borrowing constraint faced by consumers. We show that the occurrence of over-investment and the behavior of capital accumulation depend on the rate of inflation, the relative risk aversion of agents and the marginal productivity of the capital goods.
Ferraris, L., Watanabe, M. (2008). Collateral secured loans in a monetary economy. JOURNAL OF ECONOMIC THEORY, 143(1), 405-424 [10.1016/j.jet.2008.02.002].
Collateral secured loans in a monetary economy
FERRARIS, LEO;
2008-01-01
Abstract
This paper presents a microfounded model of money where durable assets serve as a guarantee to repay consumption loans. We study a steady state equilibrium where money and credit coexist. In such an equi- librium, a larger investment in durable capital relaxes the borrowing constraint faced by consumers. We show that the occurrence of over-investment and the behavior of capital accumulation depend on the rate of inflation, the relative risk aversion of agents and the marginal productivity of the capital goods.| File | Dimensione | Formato | |
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