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 equilibrium, 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. © 2008 Elsevier Inc. All rights reserved.
Original language | English |
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Pages (from-to) | 405-424 |
Journal | Journal of Economic Theory |
Volume | 143 |
DOIs | |
Publication status | Published - 2008 |