We examine a theoretical model of liquidity with three assets-money, government bonds, and equity-that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing play a beneficial role for different purposes.
Amendola, N., Carbonari, L., Ferraris, L. (2024). Three liquid assets. MACROECONOMIC DYNAMICS, 28(3 (April 2024)), 675-698 [10.1017/S1365100523000202].
Three liquid assets
Ferraris L.
2024
Abstract
We examine a theoretical model of liquidity with three assets-money, government bonds, and equity-that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing play a beneficial role for different purposes.
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