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.
The role of international capital flows in economic development raises important open questions. In particular, the question asked by Robert Lucasalmost twenty years ago—why so little capital flows from rich to poor countries—received renewed interest as capital has been flowing "upstream" from developing countries to the U.S. since 2000. This paper takes a fresh look at the pattern of capital flows to developing countries through the lenses of the neoclassical growth model.
The topic of corporate governance in general, and top management compensation in particular, has received enormous attention in recent years. Alignment of the incentives of top management with the interests of shareholders has been characterized as an important mechanism of corporate governance. In fact, there is a large theoretical and empirical literature on the role of incentive contracts in ameliorating agency problems. However, there is less research on the design of managerial compensation structure taking into account its interaction with the other mechanisms of corporate governance.
