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General Equilibrium with Multiple Liquid Assets

Author

Listed:
  • Lukas Altermatt

    (University of Essex)

  • Kohei Iwasaki

    (Osaka University)

  • Randall Wright

    (University of Wisconsin, Madison)

Abstract
This paper studies, analytically and numerically, economies with multiple liquid assets: fiat currency; fixed-supply real assets; and reproducible capital. Cases are considered where assets provide direct liquidity, and indirect liquidity via over-the-counter trade. The results shed new light on how monetary policy affects asset markets and investment. We also provide novel results on endogenous fluctuations (self-fulfilling prophecies), including coexistence of multiple equilibria with very different correlation and volatility patterns. Then we investigate if monetary policy can eliminate multiplicity. A calibration exercise assesses the impact on asset markets and on welfare of different policies, including changing inflation, and eliminating currency altogether. (Copyright: Elsevier)

Suggested Citation

  • Lukas Altermatt & Kohei Iwasaki & Randall Wright, 2023. "General Equilibrium with Multiple Liquid Assets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 267-291, December.
    • Handle: RePEc:red:issued:22-107
    DOI: 10.1016/j.red.2023.01.003
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    More about this item

    Keywords

    Liquidity; dynamics; asset returns; monetary policy;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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