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Money and asset prices with uninsurable risks

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  • Jacquet, Nicolas L.
  • Tan, Serene

Abstract

We present a theory of differences of liquidity across assets, based on an endogenous ranking of assets as media of exchange arising from their relative quality as hedging devices. When assets have two distinct roles, as intertemporal media of exchange and hedging devices, buyers have generically a strict preference for paying sellers with the asset which is the relative better hedging device for sellers. The consequence of this preference is that there are three monetary policy regimes, and these regimes differ in which assets serve as media of exchange, whether assets carry a liquidity premium, and in the impact that monetary policy has on asset prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): 8 ()
Pages: 784-797

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Handle: RePEc:eee:moneco:v:59:y:2012:i:8:p:784-797

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Web page: http://www.elsevier.com/locate/inca/505566

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Cited by:
  1. Martin Meier & Burkhard Schipper, 2013. "Bayesian Games with Unawareness and Unawareness Perfection," Working Papers 139, University of California, Davis, Department of Economics.
  2. Athanasios Geromichalos & Lucas Herrenbrueck & Kevin Salyer, 2013. "A Search-Theoretic Model of the Term Premium," Working Papers 138, University of California, Davis, Department of Economics.
  3. David Andolfatto & Aleksander Berentsen & Christopher J. Waller, 2013. "Monetary policy with asset-backed money," Working Papers 2013-030, Federal Reserve Bank of St. Louis.

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