Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155528
Authors: 
Rodriguez-Lopez, Antonio
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6286
Abstract: 
This paper introduces a framework to study the links between the supply of liquid assets for the financial market and the international allocation of economic activity. Private assets’ liquidity properties - their usefulness as collateral or media of exchange in financial transactions - affect assets’ values and interest rates, with consequences on firm entry, production, aggregate productivity, and total market capitalization. In a closed economy, the liquidity market increases the size and productivity of the sector of the economy that generates liquid assets. In an open economy, however, cross-country differences in financial development s measured by the degree of liquidity of a country’s assets - generate an allocation of real economic activity that favors the country that supplies the most liquid assets. In such a setting, trade liberalization magnifies the gap in economic activity between the countries.
Subjects: 
liquidity
trade
financial development
interest rates
JEL: 
E43
E44
F12
F40
Document Type: 
Working Paper

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