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Liquidity and Asset Market Dynamics

Listed author(s):
  • Randall Wright

    (University of Wisconson, Madison)

  • Guillaume Rocheteau

    (University of California, Irvine)

We study economies with an essential role for liquid assets in transactions. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of nonstationary equilibria, even when fundamentals are deterministic and time invariant, including periodic, chaotic, and stochastic (sunspot) equilibria with recurrent market crashes. Some equilibria have asset price trajectories that resemble bubbles growing and bursting. We also analyze endogenous private and public liquidity provision. Sometimes it is efficient to have enough liquid assets to satiate demand; other times it is not.

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File URL: https://economicdynamics.org/meetpapers/2011/paper_103.pdf
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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 103.

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Date of creation: 2011
Handle: RePEc:red:sed011:103
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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