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Liquidity, business cycles, and monetary policy

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Original languageEnglish
Pages (from-to)2926-2966
Number of pages41
JournalJournal of Political Economy
Issue number6
Early online date18 Oct 2019
Publication statusPublished - Dec 2019


The paper presents a model of a monetary economy where there are differences in liquidity across assets. Money circulates because it is more liquid than other assets, not because it has any special function. The model is used, first, to investigate how aggregate activity and asset prices fluctuate with shocks to productivity and liquidity; second, to examine what role government policy might have through open market operations that change the mix of assets held by the private sector.

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