European Parliament Library

Monetary Transaction Costs and the Term Premium, Raphael Espinoza, Dimitrios P. Tsomocos

We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of monetary policy. We also show asset prices are higher in liquidity-constrained states of nature. This generates a term premium even in absence of aggregate uncertainty. These results hold in any monetary economy with heterogeneous agents and short-term liquidity effects, where monetary costs act as transaction costs and the quantity theory of money is verified
Table Of Contents
Cover; Contents; I. Introduction; II. The Baseline Model; A. Structure of the Model; Figures; 1. Time and uncertainty structure of the model; 2. Timing of commodity, asset and money markets; B. Budget Set for Agent α; C. Budget Set for Agent β; III. Monetary Equilibrium; IV. Liquidity and the Term Structure of Interest Rates; 3. Three period example; V. Extensions; A. Multiple Commodities; B. An Extension of Cash-In-Advance Constraints; C. Budget Set for Agent α; D. Budget Set for Agent β; VI. Conclusion; References; Appendix 1; Appendix 2; Appendix 3
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (39 p.)
Specific Material Designation
Form Of Item

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