This paper introduces agent heterogeneity, liquidity, and endogenous default to a DSGE framework. Our model allows for … the economy. Due to liquidity and endogenous default, the transmission mechanism of shocks is well defined, and their …

We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the … Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of … monetary policy. We also show asset prices are higher in liquidity-constrained states of nature. This generates a term premium …

random and therefore create liquidity risk, which in turn determines the supply of credit and the money multiplier. We study … profiting from lending and incurring greater liquidity risk. We calibrate our model to study quantitatively why banks have …