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Asset Prices and Liquidity in an Exchange Economy

  • Ricardo Lagos

    ()

    (Economics Federal Reserve Bank of Minneapolis and New York University)

An asset-pricing model is developed, in which financial assets are valued for their liquidity--the extent to which they are useful in facilitating exchange--as well as for being claims to streams of consumption goods. The theory is used to study the implications of this liquidity channel for average asset returns, the equity-premium puzzle and the risk-free rate puzzle.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 143.

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Date of creation: 2005
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Handle: RePEc:red:sed005:143
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  2. Dimitri Vayanos & Pierre-Olivier Weill, 2007. "A search-based theory of the on-the-run phenomenon," LSE Research Online Documents on Economics 24474, London School of Economics and Political Science, LSE Library.
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  9. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
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  35. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 20-26.
  36. Krueger, Dirk & Perri, Fabrizio, 2002. "Does Income Inequality Lead to Consumption Inequality?," CEPR Discussion Papers 3583, C.E.P.R. Discussion Papers.
  37. Bansal, Ravi & Coleman, Wilbur John, II, 1996. "A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1135-71, December.
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  39. Lucas, Deborah J., 1994. "Asset pricing with undiversifiable income risk and short sales constraints: Deepening the equity premium puzzle," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 325-341, December.
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