Liquidity Constrained Markets versus Debt Constrained Markets

@inproceedings{Kehoe2001LiquidityCM,
  title={Liquidity Constrained Markets versus Debt Constrained Markets},
  author={Timothy Jerome Kehoe and David K. Levine},
  year={2001}
}
This paper compares two different models in a common environment. The first model has liquidity constraints in that consumers save a single asset that they cannot sell short. The second model has debt constraints in that consumers cannot borrow so much that they would want to default, but is otherwise a standard complete markets model. Both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective… CONTINUE READING

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