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A monetary approach to asset liquidity

  • Guillaume Rocheteau

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.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0901.

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Date of creation: 2009
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Handle: RePEc:fip:fedcwp:0901
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