The Liquidity Premium of Near-Money Assets

@inproceedings{Nagel2014TheLP,
  title={The Liquidity Premium of Near-Money Assets},
  author={Stefan Werner Nagel},
  year={2014}
}
This paper proposes a theory that links the liquidity premium of near-money assets with the level of short-term interest rates: Higher interest rates imply higher opportunity costs of money holdings and hence a higher premium for the liquidity service benefits of money substitutes. Consistent with this theory, short-term interest rates in the US, UK, and Canada have a strong positive relationship with the liquidity premium of Treasury bills and other near-money assets. Treasury security supply… CONTINUE READING

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