Money is the medium used to transfer resources on the spot, while liquidity refers to the availability of a medium to transfer resources over time. The monetary search literature initiated by Kiyotaki and Wright (1989) has been successful in providing a solid micro foundation based on trade frictions for the emergence of money as a medium of exchange. On the other hand, a recent growing literature emphasizes the importance of financial frictions and liquidity constraints for the emergence of a medium to transfer resources over time. In particular, Kiyotaki and Moore (2001b) study the effect of limited supply of liquid assets on investment. Although, intuitively, money and liquidity would seem to be linked, these two approaches take them as separate issues.
Chicago is enlivened by the presence of many ethnic neighborhoods, which are reflected in the city’s small business sector. This makes Chicago an excellent location for studying small business finance in ethnic communities. The topic is important because the availability of capital may depend, in part, on ethnic differences in factors such as the use of informal financing (loans or gifts from family, friends, or business associates) as opposed to formal financing from banks and other financial institutions. We still have much to learn about business access to capital in an ethnic context. To shed some light on these matters, the Federal Reserve Bank of Chicago and researchers from the University of Chicago conducted surveys in two Chicago neighborhoods, Little Village, a predominantly Hispanic community, and Chatham, a predominantly Black community.These communities were chosen because they are distinct and well recognized ethnic neighborhoods with viable small business sectors. Although most of the business owners interviewed are either Black or Hispanic, other ethnic groups are represented. One of the important features of the surveys is that they shed light on informal and formal sources of financing for both households and businesses.
Small business access to capital is an important policy issue because business owners may face funding limits, known to economists as liquidity constraints. Although many observers might take funding limits as self evident, studies have shown that liquidity constraints affect entrepreneurs both upon start up and after the business is underway. These constraints deter entry into self employment and force would be owners to save for longer periods before launching a business. The effects of start-up constraints extend to ongoing businesses, because starting with more capital increases an owner’s prospects of developing a viable, growing business. Thus, entrepreneurs’ ultimate success depends, in part, on how successful they are in obtaining adequate capital and credit.
This paper examines policies designed to alter the equilibrium distribution of education and their wider economic consequences. It also looks at the nature of education decisions and the role that such decisions play in shaping life cycle earnings and wealth profiles. Individual choices are analyzed in the context of a general equilibrium model with separate, education-specific spot markets for jobs. The unit price of (efficiency-weighted) labor differs by education group and equals marginal product.
We are interested in the equilibrium, long-term effects of policy interventions targeting the wider population rather than limited groups, with relative labor prices endogenously adjusting to changes in the aggregate supply of educated people. We examine traditional policies, such as tuition transfers and loan subsidies, but we also devise and evaluate alternative forms of policy intervention. The policy experiments are carried out through numerical simulations, with some of the model’s parameters directly estimated from PSID, NLSY and CPS data and others calibrated to match specific long-term features of the US economy. By simulating and comparing equilibrium outcomes we aim to explore the quantitative aspects of the relationship among schooling decisions, wages inequality and education policy. The impact of diverse education policies on equilibrium measures of productivity, consumption and welfare is also considered.
