A Tractable Model of Indirect Asset Liquidity

Lucas Herrenbrueck and Athanasios Geromichalos

MPRA Paper from University Library of Munich, Germany

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 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 (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 G12 (search for similar items in EconPapers)
Date: 2015-12-23
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/68521/1/MPRA_paper_68521.pdf original version (application/pdf)

Related works:
Journal Article: A tractable model of indirect asset liquidity (2017)
Working Paper: A Tractable Model of Indirect Asset Liquidity (2015)
Working Paper: A Tractable Model of Indirect Asset Liquidity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68521

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