A model of endogenous direct and indirect asset liquidity

Coexistence of money and interest-bearing bonds

“…My results regarding the welfare effects of direct and indirect liquidity contrast findings by Geromichalos, Jung, Lee, and Carlos (2019). These authors combine the model of endogenous direct asset liquidity by Lester, Postlewaite, and Wright (2012) with an OTC financial market.…”

“…Their results arise only when policy deviates from the Friedman rule while in their environment, the Friedman rule is optimal. Though the current paper considers exogenously given parameters for direct and indirect asset liquidity, the opposite findings of Geromichalos et al (2019) suggest that the welfare effects of changing direct or indirect asset liquidity depend on the policy context. Specifically, it matters whether optimal policy regimes are considered.…”

“…These authors combine the model of endogenous direct asset liquidity by Lester, Postlewaite, and Wright (2012) with an OTC financial market. Taking inflation and the supply of assets other than fiat money as given, Geromichalos et al (2019) find that improving direct asset liquidity can positively affect welfare while improving indirect asset liquidity may hurt welfare. Their results arise only when policy deviates from the Friedman rule while in their environment, the Friedman rule is optimal.…”

Inflation and Welfare in a Competitive Search Equilibrium with Asymmetric Information

“…Among these papers, we find Rocheteau (2011), Lester, Postlewaite, and Wright (2012), Wang (2020), and Geromichalos et al. (2021).…”

“…Finally, while in this model asymmetric information concerns buyers preferences for consumption, there are other papers in the new monetarist literature where the informational asymmetry concerns the returns on the assets that are used as means of payment. Among these papers, we find Rocheteau (2011), Lester, Postlewaite, andWright (2012), Wang (2020), andGeromichalos et al (2021).…”