Information , Liquidity , Asset Prices and Monetary Policy ∗

  title={Information , Liquidity , Asset Prices and Monetary Policy ∗},
  author={Benjamin Lester and Andrew Postlewaite},
We study economies with multiple assets that are valued both for their return and liquidity. Liquidity is modeled by having some trade occur in markets where a medium of exchange is essential. Certain assets are more liquid, or more likely to be accepted in trade. This is modeled using information frictions: while everyone recognizes currency, say, they are less sure about and hence less likely to accept other assets. Recognizability is endogenized by letting agents invest in information… CONTINUE READING
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