Collateral Secured Loans in a Monetary Economy Articles uri icon

authors

  • FERRARIS, LEO
  • WATANABE WATANABE, MAKOTO

publication date

  • November 2008

start page

  • 405

end page

  • 424

issue

  • 1

volume

  • 143

International Standard Serial Number (ISSN)

  • 0022-0531

Electronic International Standard Serial Number (EISSN)

  • 1095-7235

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.