Asset Liquidity, Private Information Acquisition, and Monetary Policy
Abstract: This paper investigates the implications of private information acquisition for asset liquidity. To formalize private information acquisition about the quality of liquid assets, I develop a New-Monetarist model that incorporates a bargaining protocol with private information and strategic information acquisition decisions. The decisions to acquire private information depend on various economic fundamentals and monetary policy, revealing that a higher nominal interest rate encourages the acquisition of private information. The paper identifies a non-monotonic effect of an increased nominal interest rate on asset liquidity, highlighting a novel channel through private information acquisition.
Liquidity and Monetary Policy with Fraudulent Assets (with Duhyeong Kim)
Abstract: This paper studies the role of money as a safe, fraud-free asset within an environment where asset trading is subject to fraudulent practices. We develop a New-Monetarist model with endogenous costly fraud and screening, which jointly determine the presence of fraudulent assets as well as liquidity. Without money, fraud arises in equilibrium when the costs of fraud and screening are sufficiently low. This occurs as random screening acts to relax the asset resalability constraint that normally prevents fraud from occurring. Money can substitute for random screening as a device to relax the asset resalability constraint, and thus, fraud never arises when money is valued. The model highlights monetary policy implications for fraud incentives and asset liquidity.
Asset Liquidity and Information Acquisition under Hidden Information Status
Abstract: This paper studies the information asymmetries in asset trading generated through information acquisition. The decision to acquire information is not observed by the counterparty, keeping the information status of the informed agents hidden. I develop a New-Monetarist framework to study the implications of hidden information status for private information acquisition, embedding a screening protocol in order to distinguish the asset quality and the information status simultaneously. The hidden information status provides a strategic advantage to the agents without private information, who can pretend to be informed under certain conditions. For monetary policy implications, an increased nominal interest rate has a non-monotonic effect on private information acquisition.
Asset Liquidity, Portfolio Management, and the Home Bias Puzzle