Debt constraints and monetary policy

Dietrich, Diemo, Shin, Jong and Tvede, Mich (2020) Debt constraints and monetary policy. Journal of Mathematical Economics, 87. pp. 31-42. ISSN 0304-4068

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In the present paper we show how simple monetary policies can mitigate real effects of credit frictions. We consider stationary overlapping generations economies in which consumers are not equally efficient in producing capital and cannot commit to repay loans. The presence of money in itself does not mitigate the real effects of credit frictions. Equilibrium allocations are generally not Pareto optimal unless the returns on money and capital production are identical for more productive consumers. However, printing money and distributing it to young consumers increases their incomes allowing young more productive consumers to produce more capital. Consequently money printing increases output.

Item Type: Article
Uncontrolled Keywords: asset bubbles,financial frictions,growth,model,monetary policy,overlapping generations economies,pure exchange
Faculty \ School: Faculty of Social Sciences > School of Economics
UEA Research Groups: Faculty of Social Sciences > Research Groups > Economic Theory
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Depositing User: LivePure Connector
Date Deposited: 07 Jan 2020 04:14
Last Modified: 18 Aug 2023 00:36
DOI: 10.1016/j.jmateco.2019.12.004


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