Lagos, Ricardo and Zhang, Shengxing 
ORCID: 0000-0002-1475-2188
(2019)
A monetary model of bilateral over-the-counter markets.
Review of Economic Dynamics, 33.
pp. 205-227.
ISSN 1094-2025
Abstract
We develop a model of monetary exchange in bilateral over-the-counter markets to study the effects of monetary policy on asset prices and financial liquidity. The theory predicts asset prices carry a speculative premium that reflects the asset's marketability and depends on monetary policy and the market microstructure where it is traded. These liquidity considerations imply a positive correlation between the real yield on such assets as stocks and housing and the nominal yield on Treasury bonds—an empirical observation long regarded anomalous. We provide novel theoretical implications and empirical evidence regarding the effect of monetary policy on the liquidity of these markets.
| Item Type: | Article |
|---|---|
| Additional Information: | © 2019 Elsevier Inc. |
| Divisions: | Economics |
| Subjects: | H Social Sciences > HG Finance |
| JEL classification: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Date Deposited: | 28 Mar 2019 00:13 |
| Last Modified: | 06 Apr 2024 07:36 |
| URI: | http://eprints.lse.ac.uk/id/eprint/100309 |
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