Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity
New York University Stern School of Business; University of Wisconsin-Madison, FRB Minneapolis, FRB Chicago, and NBER
New Monetarist model with pledgability constraints on assets (bonds, housing, capital, money) serving as collateral to secure credit in a decentralized market (KM) alongside a frictionless centralized market (AD). Incorporates limited commitmen
CRS production function f(k,l) with capital and labor; competitive home builders with convex cost function for housing production
Section V.B, Figure 2-3, p.254-256
Optimal inflation rate under baseline calibration with taxes; Mundell-Tobin effect offsets tax distortion on capital
Authors state 'the calibration implies the optimal inflation rate is 3.5 percent' as their main welfare result in baseline model