A tractable model of indirect asset liquidity
Lucas Herrenbrueck and
Athanasios Geromichalos
Journal of Economic Theory, 2017, vol. 168, issue C, 252-260
Abstract:
Assets have “indirect liquidity” if they cannot be used as media of exchange, but can be traded to obtain a medium of exchange (money) and thereby inherit monetary properties. This essay describes a simple dynamic model of indirect asset liquidity, provides closed form solutions for real and nominal assets, and discusses properties of the solutions. Some of these are standard: assets and money are imperfect substitutes, asset demand curves slope down, and money is not always neutral. Other properties are more surprising: prices are flexible but appear sticky, and an increase in the supply of indirectly liquid assets can decrease welfare. Because of its simplicity, the model can be useful as a building block inside a larger model, and for teaching concepts from monetary theory.
Keywords: Monetary-search models; Asset liquidity; Asset prices; Monetary policy; Monetary aggregates (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 G12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053116301259
Full text for ScienceDirect subscribers only
Related works:
Working Paper: A Tractable Model of Indirect Asset Liquidity (2015) 
Working Paper: A Tractable Model of Indirect Asset Liquidity (2015) 
Working Paper: A Tractable Model of Indirect Asset Liquidity (2015) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:168:y:2017:i:c:p:252-260
DOI: 10.1016/j.jet.2016.12.009
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().