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Asset prices and creation in a global economy

Author

Listed:
  • Shengxing Zhang

    (London School of Economics)

  • Keyu Jin

    (London School of Economics)

Abstract

We analyze a two country stochastic open-economy framework in which countries differ in their ability to create liquid assets. We examine the consequences of this asymmetry on international asset prices and asset creation. Higher volatility, financial integration of emerging markets drive up the liquidity premium of assets created in advanced economies, and also stimulate the latter's production of liquid assets. Financial development (innovation) in advanced economies, on the other hand, also drive up the liquidity premium of these assets, and boost growth in both economies.

Suggested Citation

  • Shengxing Zhang & Keyu Jin, 2015. "Asset prices and creation in a global economy," 2015 Meeting Papers 1253, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1253
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    References listed on IDEAS

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