Liquid Equity and Boom-Bust Dynamics
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Date
2024-07
Publication Type
Working Paper
ETH Bibliography
yes
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Abstract
I develop and analyze a monetary model with liquid equity. Equity is a claim on the profits of firms acting as sellers in the search-and-matching market. Buyers in that market devote search to obtain matches with firms, and use the equity to relax a liquidity constraint. The dual nature of equity in the search-and-matching market entails a strategic complementary in search operating through buyers’ liquidity constraint, and it gives rise to endogenous booms and busts. The economy is stable in an inflation-targeting regime if combined with asset purchases, meaning the government effectively puts a floor below the value of equity.
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published
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Journal / series
Volume
519
Pages / Article No.
Publisher
KOF Swiss Economic Institute, ETH Zurich
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Date collected
Date created
Subject
coordination; equity; liquidity; money-search; sunspots
Organisational unit
06338 - KOF FB KOF Lab / KOF FB KOF Lab
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
03729 - Gersbach, Hans / Gersbach, Hans