Liquidity, Business Cycles, and Monetary Policy

The first version of this paper was presented as a plenary address to 2001 Annual Meeting of the Society for Economic Dynamics, and then as a Clarendon Lecture at the University of Oxford (Kiyotaki and Moore, 2001). We are grateful for feedback from many conference and seminar participants. In particular, we would like to thank Olivier Blanchard, Markus Brunnermeier, V.V. Chari, Marco Del Negro, Edward Green, Bengt Holmstrom, Olivier Jeanne, Arvind Krishnamurthy, Narayana Kocherlakota, Guido Lorenzoni, Robert Lucas, Kiminori Matsuyama, Ellen McGrattan, Shouyong Shi, Jonathan Thomas, Robert Townsend, Neil Wallace, Randall Wright, and Ruilin Zhou for very helpful discussions and criticisms. We would like to express our special gratitude to Wei Cui for his excellent research assistance. Kiyotaki gratefully acknowledges financial support from the US National Science Foundation. Moore gratefully acknowledges the support from the European Research Council Advanced Grant. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.