Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity

Venkateswaran, Venky; Wright, Randall

doi:10.1086/674600

Cited by 53 publications

(41 citation statements)

References 68 publications

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“…We focus here on monetary equilibria, which exist under natural parameter conditions (see, e.g., Venkateswaran and Wright (2013)). Profit maximization implies ω = f 1 (N K) and ρ = f 2 (N K).…”

Section: Reproducible Capitalmentioning

confidence: 99%

Money and Credit Redux

Mattesini²,

Wright

2016

Econometrica

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We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money is essential, but credit becomes irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for both exogenous and endogenous debt limits and policy limits, secured and unsecured lending, and general pricing mechanisms. While we show how to overturn some of these results, the benchmark model suggests credit might matter less than people think.

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Section: Reproducible Capitalmentioning

confidence: 99%

Money and Credit Redux

Mattesini²,

Wright

2016

Econometrica

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“…(), Lester et al. (), and Venkateswaran and Wright (). In Trejos and Wright () and Shi (), the trade in the meeting is determined by the generalized Nash bargaining solution, treated as the limit of equilibria from an alternating‐offer game in the meeting.…”

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confidence: 99%

Nonneutrality of Money in Dispersion: Hume Revisited

Jin

Zhu

2019

Int Economic Review

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For a class of standard and widely used preferences, a one‐shot money injection in a standard matching model can induce a significant and persistent output response by dispersing the distribution of wealth. Decentralized trade matters for both persistence and significance. Following the injection, the price response may be sluggish, the markup may move up with output, and both the interest rate and the inflation rate may drop below their trend levels.

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“… For example, Venkateswaran and Wright () and Geromichalos et al. () study the liquidity properties of assets which can be used as collateral to secure loans, within environments in which borrowers' commitment to repay their debt is limited.…”

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confidence: 99%

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

Geromichalos¹,

Herrenbrueck²

2016

Journal of Money, Credit and Banking

109

101

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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. Terms of use: Documents in Department of EconomicsOne Shields Avenue Davis, CA 95616 (530)752-0741 http://www.econ.ucdavis.edu/working_search.cfm Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets Athanasios GeromichalosUniversity of California -Davis Lucas Herrenbrueck University of California -DavisThis Version: September 2012 PRELIMINARY AND INCOMPLETE -PLEASE DO NOT CIRCULATE 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 and Wright (2005), and real assets are traded in an over-the-counter (OTC) market, as in Duffie, Gârleanu, 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.Keywords: monetary-search models, liquidity, asset prices, over-the-counter markets Email: ageromich@ucdavis.edu, herrenbrueck@ucdavis.edu.We are grateful to Jonathan Chiu, Miguel Molico, Guillaume Rocheteau, Christo...

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Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity

Cited by 53 publications

References 68 publications

Money and Credit Redux

Money and Credit Redux

Nonneutrality of Money in Dispersion: Hume Revisited

Monetary Policy, Asset Prices, and Liquidity in Over-the-Counter Markets

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