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Money, Payments, and Liquidity$
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Ed Nosal and Guillaume Rocheteau

Print publication date: 2011

Print ISBN-13: 9780262016285

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016285.001.0001

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Liquidity, Monetary Policy, and Asset Prices

Liquidity, Monetary Policy, and Asset Prices

Chapter:
(p.285) 11 Liquidity, Monetary Policy, and Asset Prices
Source:
Money, Payments, and Liquidity
Author(s):

Ed Nosal

Guillaume Rocheteau

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262016285.003.0011

This chapter investigates the process through which asset prices are determined in monetary economies. Here, fiat money is viewed as an asset when situated within a monetary economy. Though its fundamental value is zero, fiat money appears to have positive value if there is limited enforcement and a lack of record-keeping. The presents study focuses on an environment void of money, but with a fixed supply of assets. It shows that just like fiat money, real assets can be used as a medium of exchange in decentralized trades. Next, the chapter explores how inflation affects the pricing of assets within an environment that has a fixed supply of real assets. It also determines the possible value of assets by analyzing rate-of-return differences across assets as stemming from liquidity differences.

Keywords:   asset prices, monetary economy, fiat money, fixed supply of assets, medium of exchange, pricing of assets, real assets, rate-of-return differences, liquidity

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