Collateral secured loans in a monetary economy |
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Authors: | Leo Ferraris Makoto Watanabe |
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Institution: | Department of Economics, Universidad Carlos III de Madrid, Calle Madrid 126, 28903 Getafe Madrid, Spain |
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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. |
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Keywords: | E40 |
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