Liquidity and trading dynamics:
How do financial frictions affect the response of an economy to aggregate shocks? In this paper, we address this question, focusing on liquidity constraints and uninsurable idiosyncratic risk. We consider a search model where agents use liquid assets to smooth individual income shocks. We show that...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2007
|
| Schriftenreihe: | Working paper series / National Bureau of Economic Research
13204 |
| Online-Zugang: | Volltext |
| Zusammenfassung: | How do financial frictions affect the response of an economy to aggregate shocks? In this paper, we address this question, focusing on liquidity constraints and uninsurable idiosyncratic risk. We consider a search model where agents use liquid assets to smooth individual income shocks. We show that the response of this economy to aggregate shocks depends on the rate of return on liquid assets. In economies where liquid assets pay a low return, agents hold smaller liquid reserves and the response of the economy tends to be larger. In this case, agents expect to be liquidity constrained and, due to a self-insurance motive, their consumption decisions are more sensitive to changes in expected income. On the other hand, in economies where liquid assets pay a large return, agents hold larger reserves and their consumption decisions are more insulated from income uncertainty. Therefore, aggregate shocks tend to have larger effects if liquid assets pay a lower rate of return. |
| Beschreibung: | Literaturverz. S. 44 - 46 |
| Beschreibung: | 46 S. graph. Darst. 22 cm |
Internformat
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| 490 | 1 | |a Working paper series / National Bureau of Economic Research |v 13204 | |
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| 520 | 8 | |a How do financial frictions affect the response of an economy to aggregate shocks? In this paper, we address this question, focusing on liquidity constraints and uninsurable idiosyncratic risk. We consider a search model where agents use liquid assets to smooth individual income shocks. We show that the response of this economy to aggregate shocks depends on the rate of return on liquid assets. In economies where liquid assets pay a low return, agents hold smaller liquid reserves and the response of the economy tends to be larger. In this case, agents expect to be liquidity constrained and, due to a self-insurance motive, their consumption decisions are more sensitive to changes in expected income. On the other hand, in economies where liquid assets pay a large return, agents hold larger reserves and their consumption decisions are more insulated from income uncertainty. Therefore, aggregate shocks tend to have larger effects if liquid assets pay a lower rate of return. | |
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| id | DE-604.BV023593113 |
| illustrated | Illustrated |
| index_date | 2024-07-02T22:41:31Z |
| indexdate | 2024-07-09T21:25:14Z |
| institution | BVB |
| language | English |
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| physical | 46 S. graph. Darst. 22 cm |
| publishDate | 2007 |
| publishDateSearch | 2007 |
| publishDateSort | 2007 |
| publisher | National Bureau of Economic Research |
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| series2 | Working paper series / National Bureau of Economic Research |
| spelling | Guerrieri, Veronica Verfasser (DE-588)132389673 aut Liquidity and trading dynamics Veronica Guerrieri ; Guido Lorenzoni Cambridge, Mass. National Bureau of Economic Research 2007 46 S. graph. Darst. 22 cm txt rdacontent n rdamedia nc rdacarrier Working paper series / National Bureau of Economic Research 13204 Literaturverz. S. 44 - 46 How do financial frictions affect the response of an economy to aggregate shocks? In this paper, we address this question, focusing on liquidity constraints and uninsurable idiosyncratic risk. We consider a search model where agents use liquid assets to smooth individual income shocks. We show that the response of this economy to aggregate shocks depends on the rate of return on liquid assets. In economies where liquid assets pay a low return, agents hold smaller liquid reserves and the response of the economy tends to be larger. In this case, agents expect to be liquidity constrained and, due to a self-insurance motive, their consumption decisions are more sensitive to changes in expected income. On the other hand, in economies where liquid assets pay a large return, agents hold larger reserves and their consumption decisions are more insulated from income uncertainty. Therefore, aggregate shocks tend to have larger effects if liquid assets pay a lower rate of return. Lorenzoni, Guido Verfasser (DE-588)132389703 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.> NBER working paper series 13204 (DE-604)BV002801238 13204 http://papers.nber.org/papers/w13204.pdf kostenfrei Volltext |
| spellingShingle | Guerrieri, Veronica Lorenzoni, Guido Liquidity and trading dynamics |
| title | Liquidity and trading dynamics |
| title_auth | Liquidity and trading dynamics |
| title_exact_search | Liquidity and trading dynamics |
| title_exact_search_txtP | Liquidity and trading dynamics |
| title_full | Liquidity and trading dynamics Veronica Guerrieri ; Guido Lorenzoni |
| title_fullStr | Liquidity and trading dynamics Veronica Guerrieri ; Guido Lorenzoni |
| title_full_unstemmed | Liquidity and trading dynamics Veronica Guerrieri ; Guido Lorenzoni |
| title_short | Liquidity and trading dynamics |
| title_sort | liquidity and trading dynamics |
| url | http://papers.nber.org/papers/w13204.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT guerrieriveronica liquidityandtradingdynamics AT lorenzoniguido liquidityandtradingdynamics |