This paper analyses the interactions between the financial and the
real sector in an environment where liquidity holdings is an input of
the credit/investment process. The supply of liquidity is constrained
in that income pledgeability limits inside liquidity, and not all sovereign
debt is safe/liquid. We derive firms’/banks’ liquid asset portfolios
and real investment/credit-lines provision, government bonds’ prices,
the associated liquidity/collateral premia and bond spreads, aggregate
investment and credit. We provide empirical evidence of the model’s
predictions for the Euro-area, and the relevance of a European safe
asset for the long run survival of the euro-zon
Is data on this page outdated, violates copyrights or anything else? Report the problem now and we will take corresponding actions after reviewing your request.