Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79684
Authors: 
Geromichalos, Athanasios
Herrenbrueck, Lucas
Year of Publication: 
2012
Series/Report no.: 
Working Papers, University of California, Department of Economics 12-20
Abstract: 
We revisit a traditional topic in monetary economics: the relationship between asset prices and monetary policy. We study a model in which money helps facilitate trade in decentralized markets, as in Lagos andWright (2005), and real assets are traded in an over-the-counter (OTC) market, as in Duffie, Gˆarleanu, and Pedersen (2005). Agents wish to hold liquid portfolios, but liquidity comes at a cost: inflation. The OTC market serves as a secondary asset market, in which agents can rebalance their positions depending on their liquidity needs. Hence, a contribution of our paper is to provide a micro-founded explanation of the assumption that different investors have different valuations for the same asset, which is the key for generating gains from trade in the Duffie et al framework. In equilibrium, assets can be priced higher than their fundamental value because they help agents avoid the inflation tax.
Subjects: 
monetary-search models
liquidity
asset prices
over-the-counter markets
JEL: 
E31
E50
E52
G12
Document Type: 
Working Paper

Files in This Item:
File
Size
468.92 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.