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General Equilibrium with Multiple Liquid Assets

Lukas Altermatt (), Kohei Iwasaki and Randall Wright

Review of Economic Dynamics, 2023, vol. 51, 267-291

Abstract: This paper studies, analytically and numerically, economies with multiple liquid assets: fiat currency; fixed-supply real assets; and reproducible capital. Cases are considered where assets provide direct liquidity, and indirect liquidity via over-the-counter trade. The results shed new light on how monetary policy affects asset markets and investment. We also provide novel results on endogenous fluctuations (self-fulfilling prophecies), including coexistence of multiple equilibria with very different correlation and volatility patterns. Then we investigate if monetary policy can eliminate multiplicity. A calibration exercise assesses the impact on asset markets and on welfare of different policies, including changing inflation, and eliminating currency altogether. (Copyright: Elsevier)

Keywords: Liquidity; dynamics; asset returns; monetary policy (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/

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