Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/192883
Authors: 
Madison, Florian
Year of Publication: 
2018
Series/Report no.: 
Working Paper 261
Abstract: 
The aim of this paper is to study asset reallocation in financial markets subject to search, bargaining, and information frictions, and to analyze the impact of monetary policy on equilibrium outcomes. The main results show that private information regarding the quality of an asset impairs its liquidity and reduces both trading volume and consumption. As a consequence, a positive liquidity differential between money and real assets emerges, resulting in an increased demand for fiat money, as observed since the eruption of the global financial crisis. A policy intervention replacing information sensitive assets with government bonds or fiat money, as done in the asset-purchase program implemented by the Federal Reserve Bank, improves welfare.
Subjects: 
money
assets
search and matching
asymmetric information
signaling
undefeated equilibrium
JEL: 
D82
D83
E44
E52
G11
G12
Document Type: 
Working Paper
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