Uncertainty and Liquidity / Alberto Giovannini.

Format:

Book

Author/Creator:

Giovannini, Alberto.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2296.

NBER working paper series no. w2296

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Summary:

This paper studies a model where money is valued for the liquidity services it provides in the future. These liquidity services cannot be provided by any other asset. Changes in expectations of the value of future liquidity services affect the desired proportions of money and other assets in agents' portfolios, and, as a result, they change nominal interest rates and real stock prices. The paper concentrates on the effects of stochastic fluctuations in the distribution of exogenous shocks. I find that changes in dividend risk have effects opposite to those in standard dynamic portfolio models without money. Furthermore, shifts between money and other assets that are driven by precautionary liquidity demand make nominal interest rates capture information about the uncertainty in the economy more accurately than any other prices in the asset markets.

Notes:

Print version record

June 1987.