Asset Prices, Liquidity, and Monetary Policy in an Exchange Economy
AbstractI formulate a search-based asset-pricing model where equity shares and fiat money can be used as means of payment. I characterize a family of optimal stochastic monetary policies. Every policy in this family implements Friedman's prescription of zero nominal interest rates. Under an optimal policy, equity prices and returns are independent of monetary considerations. I also study a perturbation of the family of optimal policies that targets a constant but nonzero nominal interest rate. Under such policies, the average real return on equity is negatively correlated with the average inflation rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 43 (2011)
Issue (Month): (October)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- Ricardo Lagos, 2009. "Asset Prices, Liquidity, and Monetary Policy in an Exchange Economy," 2009 Meeting Papers 390, Society for Economic Dynamics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shouyong Shi, 1996.
"A Divisible Search Model of Fiat Money,"
930, Queen's University, Department of Economics.
- Boyle, Glenn W & Young, Leslie, 1988. "Asset Prices, Commodity Prices, and Money: A General Equilibrium, Rational Expectations Model," American Economic Review, American Economic Association, vol. 78(1), pages 24-45, March.
- Ricardo Lagos & Guillaume Rocheteau, 2006.
"Money and capital as competing media of exchange,"
0608, Federal Reserve Bank of Cleveland.
- Giovannini, A. & Labadie, P., 1989.
"Esset Prices And Interest Rates In Cash-In-Advance Models,"
456, Stockholm - International Economic Studies.
- Giovannini, Alberto & Labadie, Pamela, 1991. "Asset Prices and Interest Rates in Cash-in-Advance Models," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1215-51, December.
- Alberto Giovannini & Pamela Labadie, 1989. "Asset Prices and Interest Rates in Cash-In-Advance Models," NBER Working Papers 3109, National Bureau of Economic Research, Inc.
- B. Ravikumar & Enchuan Shao, 2005.
"Search Frictions and Asset Price Volatility,"
2005 Meeting Papers
227, Society for Economic Dynamics.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
- Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
- Athanasios Geromichalos & Juan M Licari & Jose Suarez-Lledo, 2007. "Monetary Policy and Asset Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 761-779, October.
- Jacquet, Nicolas L. & Tan, Serene, 2012. "Money and asset prices with uninsurable risks," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 784-797.
- Guillaume Rocheteau & Pierre-Olivier Weill, 2011.
"Liquidity in frictional asset markets,"
1105, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Gara Afonson, 2011.
"Trade Dynamics in the Market for Federal Funds,"
2011 Meeting Papers
314, Society for Economic Dynamics.
- Ricardo Lagos & Gara Afonso, 2010. "Trade Dynamics in the Market for Federal Funds," 2010 Meeting Papers 424, Society for Economic Dynamics.
- Gara Afonso & Ricardo Lagos, 2012. "Trade dynamics in the market for federal funds," Staff Reports 549, Federal Reserve Bank of New York.
- Afonso, Gara M. & Lagos, Ricardo, 2014. "Trade Dynamics in the Market for Federal Funds," Working Papers 710, Federal Reserve Bank of Minneapolis.
- Venky Venkateswaran & Randall Wright, 2013.
"Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity,"
NBER Working Papers
19009, National Bureau of Economic Research, Inc.
- Venky Venkateswaran & Randall Wright, 2013. "Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity," NBER Chapters, in: NBER Macroeconomics Annual 2013, Volume 28, pages 227-270 National Bureau of Economic Research, Inc.
- Young Sik Kim & Manjong Lee, 2011.
"Intermediary Cost and Coexistence Puzzle,"
Discussion Paper Series
1103, Institute of Economic Research, Korea University.
- Afonso, Gara M. & Lagos, Ricardo, 2014.
"The Over-the-Counter Theory of the Fed Funds Market: A Primer,"
711, Federal Reserve Bank of Minneapolis.
- Afonso, Gara M. & Lagos, Ricardo, 2014. "The over-the-counter theory of the fed funds market: a primer," Staff Reports 660, Federal Reserve Bank of New York.
- Ricardo Lagos, 2008. "The Research Agenda: Ricardo Lagos on Liquidity and the Search Theory of Money," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(1), November.
- Hanno Lustig, 2013. "A European History Lesson for Today’s Central Bankers," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 109-120, March.
- Li, Ying-Syuan & Li, Yiting, 2013. "Liquidity and asset prices: A new monetarist approach," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 426-438.
- Randall Wright & Guillaume Rocheteau, 2011.
"Liquidity and Asset Market Dynamics,"
2011 Meeting Papers
103, Society for Economic Dynamics.
- Manjong Lee & Sung Guan Yun, 2014. "Composition of Portfolio and Cost of Inflation," Discussion Paper Series 1403, Institute of Economic Research, Korea University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.