Arbeitspapier
Frictional asset reallocation under adverse selection
The aim of this paper is to study asset reallocation in financial markets subject to search, bargaining, and information frictions, and to analyze the impact of monetary policy on equilibrium outcomes. The main results show that private information regarding the quality of an asset impairs its liquidity and reduces both trading volume and consumption. As a consequence, a positive liquidity differential between money and real assets emerges, resulting in an increased demand for fiat money, as observed since the eruption of the global financial crisis. A policy intervention replacing information sensitive assets with government bonds or fiat money, as done in the asset-purchase program implemented by the Federal Reserve Bank, improves welfare.
- Language
-
Englisch
- Bibliographic citation
-
Series: Working Paper ; No. 261
- Classification
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Wirtschaft
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Financial Markets and the Macroeconomy
Monetary Policy
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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money
assets
search and matching
asymmetric information
signaling
undefeated equilibrium
- Event
-
Geistige Schöpfung
- (who)
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Madison, Florian
- Event
-
Veröffentlichung
- (who)
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University of Zurich, Department of Economics
- (where)
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Zurich
- (when)
-
2018
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Madison, Florian
- University of Zurich, Department of Economics
Time of origin
- 2018
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