Ferraris, L. and Watanabe, M. (2008). Collateral secured loans in a monetary economy Journal of Economic Theory, 143:405--424.

  • Journal
    Journal of Economic Theory

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. {\textcopyright} 2008 Elsevier Inc. All rights reserved.