Working Paper
Liquidity and asset market dynamics
Abstract: We study economies with an essential role for liquid assets in transactions. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of nonstationary equilibria, even when fundamentals are deterministic and time invariant, including periodic, chaotic, and stochastic (sunspot) equilibria with recurrent market crashes. Some equilibria have asset price trajectories that resemble bubbles growing and bursting. We also analyze endogenous private and public liquidity provision. Sometimes it is efficient to have enough liquid assets to satiate demand; other times it is not.
https://doi.org/10.26509/frbc-wp-201016
Access Documents
File(s):
https://doi.org/10.26509/frbc-wp-201016
Description: Persistent link
File(s):
File format is application/pdf
https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/working-papers/2010/wp-1016-liquidity-and-asset-market-dynamics-pdf.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 2010
Number: 1016