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A NOTE ON LIQUIDITY AND REAL EQUILIBRIUM INTEREST RATES

Published online by Cambridge University Press:  24 March 2006

LIVIO STRACCA
LIVIO STRACCA
Affiliation:
European Central Bank
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Abstract

This note proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agent-specific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return.

Keywords

Real Interest RatesLiquidity ServicesFinancial MarketHeterogeneity
Type
NOTES
Information
Macroeconomic Dynamics , Volume 10 , Issue 3 , June 2006 , pp. 426 - 438
Copyright
© 2006 Cambridge University Press

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