Fiscal Requirements for Dynamic and Real Determinacies in Economies with Private Provision of Liquidity: A Monetarist Assessment

We study the impact of fiscal policies on the inherent links between inflation, unemployment, and asset prices in an environment where firms provide liquidity and the central bank follows a constant money growth rate rule. Firms, other than hiring workers, also supply private assets that are not only useful as a store of value but also as collateral. When firms are not taxed and public debt is scarce, the economy is non-Ricardian so that real indeterminacies can be observed. Moreover, labor market characteristics do not affect the demand for government liabilities. However, when agents face public and private asset scarcity, labor market conditions then impact asset prices and inflation. We further show that irrespective of the type of asset scarcity agents face, when firms are taxed non-ad valorem, not only the level of tax revenues but also its composition matter for real allocations. Moreover, we show that labor market conditions directly affect the dynamics of all government liabilities and inflation.     

Information, learning, and the stability of fiat money

We analyze the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.     

Discussion of “Information and Liquidity”

I discuss the model of asset liquidity by Lester, Postlewaite, and Wright (2011, this issue, Forthcoming) . I consider a model with bilateral matching and bargaining in which a perfectly divisible asset serves as means of payment. A recognizability problem is introduced by assuming that the asset can be counterfeited at a positive cost. In contrast to Lester, Postlewaite, and Wright , in equilibrium sellers always accept objects that they do not recognize. The private information problem manifests itself by smaller quantities traded in uninformed matches.     

Monetary Policy and Asset Prices: A Mechanism Design Approach

We investigate the effects of monetary policy on asset prices in economies where assets are traded periodically in bilateral meetings. The trading mechanism is designed to maximize social welfare taking as given the frictions in the environment and monetary policy. We show that asset price “bubbles” emerge in a constrained‐efficient monetary equilibrium only if liquidity is abundant and the first‐best allocation is implementable. In contrast, if liquidity is scarce, assets are priced at their fundamental value in any constrained‐efficient monetary equilibrium, in which case an increase in inflation has no effect on asset prices, but it reduces output and welfare.     

Price dispersion, information and learning

We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents’ learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare ex ante welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, ex ante welfare under price dispersion may be higher than under one price.     

Liquidity in Frictional Asset Markets

On November 14–15, 2008, the Federal Reserve Bank of Cleveland hosted a conference on “Liquidity in frictional asset markets.” In this paper, we review the literature on asset markets with trading frictions in both finance and monetary theory using a simple search‐theoretic model, and we discuss the papers presented at the conference in the context of this literature. We will show the diversity of topics covered in this literature, for example, the dynamics of housing and credit markets, the functioning of payment systems, optimal monetary policy and the cost of inflation, the role of banks, the effect of informational frictions on asset trading.     

Information provision in over-the-counter markets

This paper analyzes endogenous information provision and purchase in over-the-counter (OTC) markets. On the supply side the optimal strategy of an information provider consists of selling identical information to all OTC traders. On the demand side OTC traders have an incentive to buy information from the same provider. If the incumbent information provider charges not too high a price, then an entrant firm has no demand even though it offers less expensive information of the same quality. This paper provides a rationale for the high level of market power in the industry for financial market data and credit rating services as well as why institutional traders may have no demand for a finer rating system. In addition, this paper shows that it is welfare improving for the security issuer to pay for rating services rather than having OTC traders purchase costly rating reports.     

Money,Asset Prices,and the Liquidity Premium

This paper examines the effect of monetary policy on the market value of the liquidity services that financial assets provide, known as the liquidity premium. The theory predicts that money supply and nominal interest rates have positive effects on the liquidity premium, but asset supply has a negative effect. The empirical analysis with U.S. data confirms the theoretical predictions. The theory also proposes that the liquidity properties of assets can cause negative nominal yields when the money holding cost is low and liquid assets are scarce. The suggestive empirical findings in Switzerland to support this theoretical result are presented.     

Liquidity and Optimal Market Transparency

In this paper I explore some of the consequences of greater market transparency for market performance in the presence of a strategic specialist. Although numerous studies have dealt with this issue, previous work has only considered either fully transparent or fully opaque markets. My model allows for different levels of transparency, and therefore sheds light on how transparency affects market performance. I show that an intermediate level of transparency can improve market performance relative to the more extreme cases of full transparency or no transparency at all.     

Asset Prices,Liquidity, and Monetary Policy in an Exchange Economy

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.     

Liquidity uncertainty and intermediation

The paper performs a welfare comparison between demand deposit and equity contracts in the presence of intrinsic aggregate uncertainty. In this framework, the welfare dominance of deposit contracts emerges under corner preferences. It is shown that aggregate uncertainty creates high price volatility of ex-dividend equity claims traded in a secondary market and the resulting consumption allocations offer less risk-sharing opportunities to risk-averse consumers than tailor-made deposit contracts. The contingency of early payoffs on depositors’ withdrawal order reinforces the welfare performance of deposit contracts, whereas costly liquidation of productive long-term investments deteriorates their welfare performance relative to equity contracts.     

我国流动性过剩的实证分析

本文从货币供求角度对我国流动性过剩问题进行实证分析.首先,通过构建我国广义货币需求模型,对我国广义货币需求量进行拟合,发现从2005年起我国明显出现流动性过剩问题.然后,从货币供求两个方面分析了我国流动性过剩产生的原因,外汇占款快速增长是导致广义货币供给过多的主要原因,而存款利率偏低、预期通货膨胀率提高和资本市场快速发展等都减少了广义货币需求.最后,从货币供求两方面分别提出解决我国流动性过剩的办法,除此之外,还可以有效利用流动性过剩来优化经济结构.     

Money,Bonds, and the Liquidity Trap

This paper examines a search model of money and public bonds in which coordination frictions lead to multiple, Pareto ranked equilibria. Whether money and bonds are substitutes or complements, is not a primitive of the economy, but an equilibrium outcome. There exists an equilibrium resembling a liquidity trap, in which money and bonds are perfect substitutes, interest rates are zero, and monetary policy is ineffective; and a superior equilibrium in which money and bonds are complements, interest rates are positive and monetary policy has a liquidity effect. On this view, the liquidity trap is a belief-driven phenomenon.     

关于流动性几个问题的研究

本文依据IMF《货币与金融统计手册》阐述了流动性的概念,以便在国际通行的、公认的准则下讨论我国的流动性。我国广义货币占流动性总量的比例接近90%,可以其代替流动性总量作有关分析。经测算,近几年我国流动性状况基本正常,但是2007年流动性已显现偏多的趋势,当前主要问题是国际流动性严重过剩的冲击压力仍在增长。我国进出口政策与国家发展战略错位,需要尽快调整,以从根本上解决国际流动性冲击问题。     

电子货币视角下的商业银行流动性需求

电子货币的快速发展已经给传统金融理论带来了挑战,特别是对以货币作为经营对象的商业银行经营管理产生了明显的冲击。文章以电子货币发展为视角,尝试性地引入凯恩斯的货币需求理论分析商业银行的流动性需求,旨在为商业银行的流动性管理提供有益的思路。     

Liquidity and Information Flow around Monetary Policy Announcement

We analyze the effects of monetary policy announcements on stock market liquidity using intraday data. We show that the impairment in liquidity associated with policy announcements occurs primarily after, rather than before, the announcements, and is relatively short lived, lasting about 1.5 hours. Liquidity impairment varies proportionately with the information content of the policy announcement, with larger effects associated with unscheduled announcements and scheduled announcements with larger policy surprises. Overall, our results suggest that informed traders have an information processing advantage over uninformed participants rather than access to private information.     

Inflation and Welfare in Retail Markets: Prior Production and Imperfectly Directed Search

This paper considers the effect of monetary policy and inflation on retail markets: goods are dated and produced prior to being retailed; buyers direct their search on price and general quality; buyers’ match‐specific tastes are private information. Sellers set the same price for all buyers, some of whom do not value the good highly enough to buy it. The market economy is typically inefficient as a social planner would have the good consumed. Under free entry of sellers, the Friedman rule is optimal policy. When the upper bound on the number of participating sellers binds, moderate levels of inflation can be welfare improving.     

解读当前市场流动性过剩

当前流动性过剩已成为我国经济运行中的突出问题。本文分析了市场流动性过剩问题,探寻其产生原因,提出破解市场流动性过剩的对策性建议。     

Precautionary Demand and Liquidity in Payment Systems

In large‐value real‐time gross settlement payment systems, banks rely heavily on incoming funds to finance outgoing payments. Such reliance necessitates a high degree of coordination and synchronization. We construct a model of a payment system calibrated for the U.S. Fedwire system and examine the impact of realistic disruptions motivated by the recent financial crisis. In such settings, individually cautious behavior can have a significant and detrimental impact on the overall functioning of the payment system through a multiplier effect. Our results quantify the mutually reinforcing nature of greater caution, and allow comparative statics analysis of shifts in key parameters.     

Treasury Safety,Liquidity, and Money Premium Dynamics: Evidence from Debt Limit Impasses

Treasury securities enjoy a “money premium” because they are ultra-safe and liquid. However, during debt limit impasses, the safety and liquidity of Treasury securities temporarily deteriorate, eroding the money premium. Using past impasses, we find the money premium eroded by roughly six basis points across all Treasury securities and up to 50 basis points for the shortest maturities at the greatest risk of a delayed principal payment. Safety and liquidity each accounted for about half of the erosion. The deterioration of safety and liquidity also appears to interact, consistent with theories of default-driven liquidity risk and the information sensitivity of debt.