Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity

Abstract

Moving to the AD market, as in standard growth theory, there is a numeraire good x used for consumption or investment, produced by firms using capital and labor with technology f (k, ℓ) that is strictly increasing and concave. Usually, f displays CRS (constant returns to scale), but for some results that is not necessary, and it suffices to assume inputs are complements, fkℓ > 0. Profit maximization implies

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