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Liquidity, Transaction Costs, and Real Activity
Author(s) -
Zhang Junxi
Publication year - 1998
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.1998.tb00152.x
Subject(s) - market liquidity , transaction cost , economics , monetary economics , investment (military) , business cycle , accounting liquidity , database transaction , general equilibrium theory , liquidity crisis , liquidity trap , liquidity risk , microeconomics , macroeconomics , computer science , political science , programming language , politics , law
This paper studies the liquidity effect in a pecuniary transaction‐cost model. To model the asymmetric impact of monetary injections, we consider two behavioral assumptions: sluggish money demand and sluggish firm investment. It is found that, under reasonable parameterization, the model is capable of generating a dominant liquidity effect. Our result suggests that, with alternative monetary specifications and behavioral assumptions, general equilibrium models are still useful for studying the liquidity effect at business cycle frequencies.