Monetary policy and asset prices

Abstract

Nearly seven years have passed since the last recession ended in November 2001.That recession was characterized by an unwinding of excess business investment in the aftermath of a burst U.S. stock market bubble (see Lansing 2003a). During the early years of the recovery, an accommodative interest rate environment provided stimulus to the housing market. To keep initial monthly payments affordable for the large influx of new and often credit-impaired homebuyers, the lending industry marketed a range of "exotic" mortgage products, for example, loans requiring no down payment or documentation of income, monthly payments for interest-only or less, and adjustable rate mortgages with low introductory "teaser" rates that reset higher over time. House prices rose faster in areas where exotic mortgages were more prevalent (see Tal 2006), suggesting, ironically, that the new lending products may have actually harmed affordability by fueling the price run-up.

International reserves for emerging economies: A liquidity approach

“…As already pointed out, this study attempts to bring intuitive insights from the growing monetary search literature that studies the broader notion of assets as facilitators of trade, e.g., Geromichalos, Licari, and Suarez-Lledo (2007); Lagos and Rocheteau (2008);Lagos (2011);Lester, Postlewaite, and Wright (2012);Zhang (2014). As in our study, some of these studies extend these insights by applying the notion of asset liquidity to traditional macro puzzles related to asset pricing and portfolio choice theory.…”

New Monetarist Economics: Methods

“…Therefore, the problem for a buyer coming into the CM with a portfolio ͑m,a͒ of currency and shares is given, after eliminating H, by (17) where X The presentation here has some features in common with the multiple-asset models of Geromichalos, Licari, and Suarez-Lledo (2007), Lagos (2008), Lagos and Rocheteau (2008), and Lester, Postlewaite, and Wright (2010), as well as models of money and credit, such as Sanches and Williamson (2010b).…”

A Monetary Approach to Asset Liquidity

“…As `g ets closer to h , this informational rent shrinks, and the incentive-compatibility constraint is relaxed, which improves the liquidity of the asset in the high-dividend state. 18 Conversely, as h `i ncreases, the informational asymmetries become more severe, which makes the incentive-compatibiliy condition more binding. In the case where the dividend in the low state approaches 0, the adverse selection problem is so severe that the real asset ceases to be traded.…”

“…O¤ers that violate (22) also violate (18), and since they are attributed to`-type buyers, they are rejected.…”