Working Paper
A monetary approach to asset liquidity
Abstract: This paper offers a monetary theory of asset liquidity?one that emphasizes the role of assets in payment arrangements?and it explores the implications of the theory for the relationship between assets? intrinsic characteristics and liquidity, and the effects of monetary policy on asset prices and welfare. The environment is a random-matching economy where fiat money coexists with a real asset, and no restrictions are imposed on payment arrangements. The liquidity of the real asset is endogenized by introducing an informational asymmetry in regard to its fundamental value.
https://doi.org/10.26509/frbc-wp-200901
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 2009
Number: 0901