Liquidity,Transaction Costs,and Real Activity |
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Authors: | Junxi Zhang |
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Abstract: | This paper studies the liquidity effect in a pecuniary transaction-cost model. To model the asymmetric impact of monetary injections, we consider two behavioral assumptions: sluggish money demand and sluggish firm investment. It is found that, under reasonable parameterization, the model is capable of generating a dominant liquidity effect. Our result suggests that, with alternative monetary specifications and behavioral assumptions, general equilibrium models are still useful for studying the liquidity effect at business cycle frequencies. |
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