TY  - JOUR
AU  - Venkateswaran, Venky
AU  - Wright, Randall
TI  - Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 19009
PY  - 2013
Y2  - May 2013
DO  - 10.3386/w19009
UR  - http://www.nber.org/papers/w19009
L1  - http://www.nber.org/papers/w19009.pdf
N1  - Author contact info:
Venky Venkateswaran
Stern School of Business
New York University
7-81 44 West 4th Street
New York, NY 10012
Tel: 213/255-0784
E-Mail: vvenkate@stern.nyu.edu

Randall Wright
Department of Finance and Department of Economics
University of Wisconsin - Madison
Grainger Hall
975 University Ave
Madison, WI 53706
E-Mail: rwright@bus.wisc.edu
M1  - published as Venky Venkateswaran, Randall Wright. "Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity," in Jonathan A. Parker and Michael Woodford, editors, "NBER Macroeconomics Annual 2013, Volume 28" University of Chicago Press (2014)

M3  - presented at "28th Annual Conference on Macroeconomics", April 12-13, 2013
AB  - When limited commitment hinders unsecured credit, assets help by serving as collateral. We study models where assets differ in pledgability - the extent to which they can be used to secure loans - and hence liquidity. Although many previous analyses of imperfect credit focus on producers, we emphasize consumers. Household debt limits are determined by the cost households incur when assets are seized in the event of default. The framework, which nests standard growth and asset-pricing theory, is calibrated to analyze the effects of monetary policy and financial innovation. We show that inflation can raise output, employment and investment, plus improve housing and stock markets. For the baseline calibration, optimal inflation is positive. Increases in pledgability can generate booms and busts in economic activity, but may still be good for welfare.
ER  -