Collateral secured loans in a monetary economy

L. Ferraris, M. Watanabe

Research output: Contribution to JournalArticleAcademicpeer-review

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 languageEnglish
Pages (from-to)405-424
JournalJournal of Economic Theory
Volume143
DOIs
Publication statusPublished - 2008

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