Liquidity, Transaction Costs, and Real Activity

Junxi Zhang

Southern Economic Journal, 1998, vol. 65, issue 2, 308-321

Abstract: This paper studies the liquidity effect in a pecuniary transaction‐cost model. To model the asymmetric impact of monetary injections, we consider two behavioral assumptions: sluggish money demand and sluggish firm investment. It is found that, under reasonable parameterization, the model is capable of generating a dominant liquidity effect. Our result suggests that, with alternative monetary specifications and behavioral assumptions, general equilibrium models are still useful for studying the liquidity effect at business cycle frequencies.

Date: 1998
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https://doi.org/10.1002/j.2325-8012.1998.tb00152.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:65:y:1998:i:2:p:308-321

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