Abstract
I formulate a model in which money coexists with equity shares on a risky aggregate endowment. Agents can use equity as a means of payment, so shocks to equity prices translate into aggregate liquidity shocks that disrupt the mechanism of exchange. I characterize a family of optimal monetary policies and find that the resulting equity prices are independent of monetary considerations. I also study a perturbation of the family of optimal policies that targets a positive constant nominal interest rate and find that in this case the real equity return includes a liquidity return that depends on monetary considerations.
Original language | English (US) |
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Pages (from-to) | 521-552 |
Number of pages | 32 |
Journal | Journal of Money, Credit and Banking |
Volume | 43 |
Issue number | SUPPL. 2 |
DOIs | |
State | Published - Oct 2011 |
Keywords
- Asset pricing
- Liquidity
- Money
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ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics