This paper examines a mechanism of liquidity-preference fluctuations caused by changes in people’s belief about a random liquidity shock. When observing the shock, they rationally update their belief so that the shock probability is higher; consequently they raise liquidity preference and...

In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and post-crisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of...

In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and post-crisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of...

This paper builds a directed search model with asymmetric information and argues that small firms hold liquid assets not only to self-finance investment but also to show their investment quality to obtain better loan terms. Because self-finance is an outside option of borrowing, it affects bank...

In response to the COVID-19 pandemic, G7 central banks have launched asset purchase programs in anticipation of an increase in government bond offerings to finance ballooning fiscal deficits. As the volume of government bonds owned by private investors is not expected to rise during the current...

I use micro data to quantify key features of U.S. firm financing. In particular, I establish that a substantial 35% of firms' investment is funded using financial markets. I then construct a dynamic equilibrium model that matches these features and fit the model to business cycle data using...

We study a New Keynesian model where banks create deposits through loans, subject to increasing marginal cost of lending. Banks do not intermediate commodity deposits between savers and borrowers, instead they offer a payment system that intermediates ledger-entry deposits between spenders and...

This paper studies a modern monetary economy: trade in both goods and securities relies on money provided by intermediaries. While money is valued for its liquidity, its creation requires costly leverage. Inflation, security prices and the transmission of monetary policy then depend on the...

This report is one of the first studies discussing monetary base analysis and control model, a concept even today is alive and more developed by, for example, by IMF to use its analysis. The study presents monetary base approach to control of money flows and the links between monetary base,...

The paper examines three aspects of a financial crisis of domestic origin. The first section studies the evolution of a debt-financed consumption boom supported by rising asset prices, leading to a credit crunch and fluctuations in the real economy, and, ultimately, to debt deflation. The next...