Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173661
Authors: 
Herrenbrueck, Lucas
Geromichalos, Athanasios
Year of Publication: 
2015
Series/Report no.: 
Working Paper 15-3
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.
Subjects: 
monetary-search models
asset liquidity
asset prices
monetary policy
JEL: 
E41
E51
E52
G12
Document Type: 
Working Paper

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