Liquidity Flows and Fragility of business Enterprises

Preprint
Publisher Website
Google Scholar
  • 1 January 2000
    • preprint
      • Published in RePEc
Abstract
This paper develops a macroeconomic model in which investable assets flow to entrepreneurs through long-term relationships with lenders. Low asset flows cause relationships to brak up due to insufficient liquidity. Multiple Pareto ranked steady staes emerge from complementarity between financial intermediation, reflected by the number of relationships, and households' incentives to provide assets. This complementarity also serves as a mechanism for propagating aggregate shocks. Financial colapse may become inescapable if a shock destorys sufficiently many relationships.

This publication has 0 references indexed in Scilit: