Collateral fluctuations in a monetary economy

L. Ferraris, M. Watanabe

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper studies economy-wide fluctuations that occur endogenously in the presence of monetary and real assets. Using a standard monetary search model, we consider an economy in which agents can increase consumption, over and above what their liquid monetary asset holdings would allow, pledging real assets as collateral for monetary loans. It is shown that, if the liquidation value of real assets is below full market value, a stable cyclical equilibrium can emerge in consumption and capital around the unstable steady state. We also provide conditions for the existence of cycles of higher order, chaos and sunspot equilibria. © 2011 Elsevier Inc.
Original languageEnglish
Pages (from-to)1915-1940
JournalJournal of Economic Theory
Volume146
Issue number5
DOIs
Publication statusPublished - 2011

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Fluctuations
Assets
Loans
Market value
Chaos
Liquidation
Sunspot equilibria

Cite this

Ferraris, L. ; Watanabe, M. / Collateral fluctuations in a monetary economy. In: Journal of Economic Theory. 2011 ; Vol. 146, No. 5. pp. 1915-1940.
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Collateral fluctuations in a monetary economy. / Ferraris, L.; Watanabe, M.

In: Journal of Economic Theory, Vol. 146, No. 5, 2011, p. 1915-1940.

Research output: Contribution to JournalArticleAcademicpeer-review

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