A Tractable Model of Indirect Asset Liquidity

Athanasios Geromichalos and Lucas Herrenbrueck

No 126, Working Papers from University of California, Davis, Department of Economics

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)
Pages: 12
Date: 2015-10-13
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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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