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An operational measure of liquidity

Author

Listed:
  • McCall, John J.
  • Lippman, Steven A.

Abstract

Economists' view of liquidity is askin to Supreme Court Justice Stewart's View of hard-core pornography: I shall not ... attempt further to define (it) .... But I know it when I see it. Embedding the process of selling an asset in a search environment enables us to provide an exact definition of liquidity: an asset's liquidity is the expected time until it is sold while pursuing an optimal (in the sense of maximization of expected discounted net proceeds) policy. Our analysis reveals that this definition is compatible with most other notions of liquidity and, in particular, with those of Keynes1 , impatience, the discount associated with a quick sale, and predictability.

Suggested Citation

  • McCall, John J. & Lippman, Steven A., 1984. "An operational measure of liquidity," Discussion Papers, Series I 187, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:187
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    References listed on IDEAS

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    1. Clower, Robert W, 1977. "The Anatomy of Monetary Theory," American Economic Review, American Economic Association, vol. 67(1), pages 206-212, February.
    2. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-368, September.
    3. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-189, June.
    4. Brunner, Karl & Meltzer, Allan H, 1971. "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review, American Economic Association, vol. 61(5), pages 784-805, December.
    5. Roland N. McKean, 1949. "Liquidity and a National Balance Sheet," Journal of Political Economy, University of Chicago Press, vol. 57(6), pages 506-506.
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