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Home | Events Archive | Credit Crises and Liquidity Constrained Households
Research Master Defense

Credit Crises and Liquidity Constrained Households

  • Series
    Research Master Defense
  • Speaker
    Stefan Wöhrmüller
  • Field
  • Location
    Room 1.60
  • Date and time

    August 22, 2019
    11:00 - 12:00

This paper investigates how the responses of aggregate variables such as output and interest rates, subsequent a credit crisis, are conditional on the share of liquidity constrained households in a heterogeneous-agent incomplete-markets economy. As the key result, I find that both the interest rate and output under flexible prices show stronger responses in a scenario with a high share of liquidity constrained households compared to one with a lower share. Particularly, the interest rate drops further and the recession is deeper. Under a regime with nominal rigidities, the output drop is larger, because the zero lower bound prevents the nominal interest rate to replicate the flexible price allocation. Thereby, the recession with more liquidity constrained households is even more severe, and the economy is in a liquidity trap for more periods.