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Liquidity and real equilibrium interest rates: a framework of analysis

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  • Stracca, Livio

Abstract

This paper proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agentspecific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return and intertemporal allocation. JEL Classification: E40, E43

Suggested Citation

  • Stracca, Livio, 2005. "Liquidity and real equilibrium interest rates: a framework of analysis," Working Paper Series 542, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005542
    Note: 335958
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    More about this item

    Keywords

    financial market; heterogeneity.; liquidity services; Real interest rates;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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