The strategic determination of the supply of liquid assets

Geromichalos, Athanasios; Herrenbrueck, Lucas; Lee, Sukjoon

doi:10.1016/j.red.2022.08.003

Cited by 4 publications

(5 citation statements)

References 73 publications

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“…A high liquidity asset (in this case Bitcoin) will attract investors and increase its demand, thus increasing its price. A liquid asset is attractive because the investors can acquire more money (Geromichalos & Herrenbrueck, 2016) through selling it in the crypto market, and the transaction can be conducted in 24 hours.…”

Section: Discussionmentioning

confidence: 99%

Is Bitcoin Price Driven by Macro-financial Factors and Liquidity? A Global Consumer Survey Empirical Study

Havidz

Karman

Mambea

2021

OMEE

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This research aims to utilize macro-financial and liquidity elements as the factors that may affect the price of Bitcoin as the largest cryptocurrency in terms of market capitalization. The macro-financial factors analyzed in this study were foreign exchange, stock market index, interest rates, and gold, while liquidity ratio is the internal factor. This study applied a fixed-effect model (FEM) and Generalized Method of Moments (GMM) on gathered weekly data from 1 January 2017 to 29 December 2019 from 18 countries with the total of 2,826 observations. The analysis revealed that US Dollar amplifies Bitcoin trading; an increase in interest rate will decrease investors’ intention to invest in Bitcoin as a speculative asset, and gold could replace Bitcoin as a substitute asset. Moreover, Bitcoin was found to be highly liquid, which attracts many investors, while the stock market index proved to be insignificant.

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Section: Discussionmentioning

confidence: 99%

Is Bitcoin Price Driven by Macro-financial Factors and Liquidity? A Global Consumer Survey Empirical Study

Havidz

Karman

Mambea

2021

OMEE

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“…where θ ∈ [0, 1] is interpreted as the consumer's bargaining power. 10 By the same reasoning as above, the DM price of assets evolves according to…”

Section: Asymmetric Agendamentioning

confidence: 98%

Gradual bargaining in decentralized asset markets

Rocheteau

Lebeau

et al. 2021

Review of Economic Dynamics

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“…Our model builds on the one developed in Geromichalos and Herrenbrueck (2016b), which, in turn, is a hybrid of Lagos and Wright (2005) (henceforth, LW) and Duffie et al (2005). 7 Time is discrete and continues forever.…”

Section: The Modelmentioning

confidence: 99%

“…7 In Geromichalos and Herrenbrueck (2016b) the goal is to explain liquidity differences between assets that have the same risk characteristics, but trade in OTC markets with different micro-structures. Here, we assume that there are no differences in exogenous market characteristics.…”

Section: The Modelmentioning

confidence: 99%

“…This implies some loss of generality but not too much. As shown inGeromichalos and Herrenbrueck (2016b), specialization is actually a result when both assets are safe which follows from the fact that agents can only visit one OTC market per period. Here, it can be shown that full specialization would still be the endogenous outcome if the supply of asset 𝐴 was small enough, and asset 𝐵 was safe enough.…”

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confidence: 99%

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Asset Safety versus Asset Liquidity

Geromichalos

Herrenbrueck

Lee

2023

Journal of Political Economy

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Recently, a lot of attention has been paid to the role "safe and liquid assets" play in the macroeconomy. Many economists take as given that safer assets will also be more liquid, and some go a step further by practically using the two terms as synonyms. However, they are not synonyms: safety refers to the probability that the (issuer of the) asset will pay the promised cash flow, and liquidity refers to the ease with which an asset can be sold if needed. Mixing up these terms can lead to confusion and wrong policy recommendations. In this paper, we build a multi-asset model in which an asset's safety and liquidity are well-defined and distinct from one another. Treating safety as a primitive, we examine the relationship between an asset's safety and liquidity in general equilibrium. We show that the commonly held belief that "safety implies liquidity" is generally justified, but there may be exceptions. We then describe the conditions under which a relatively riskier asset can be more liquid than its safe(r) counterparts. Finally, we use our model to rationalize the puzzling observation that AAA corporate bonds are considered less liquid than (the riskier) AA corporate bonds.

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The strategic determination of the supply of liquid assets

Cited by 4 publications

References 73 publications

Is Bitcoin Price Driven by Macro-financial Factors and Liquidity? A Global Consumer Survey Empirical Study

Is Bitcoin Price Driven by Macro-financial Factors and Liquidity? A Global Consumer Survey Empirical Study

Gradual bargaining in decentralized asset markets

Asset Safety versus Asset Liquidity

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