We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of monetary policy. We also show asset prices are higher in...

We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of monetary policy. We also show asset prices are higher in...

We show, in an exchange economy with liquidity constraints, that state prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank. Our model is derived along the lines of Dubey and Geanakoplos (1992). Two agents trade goods and nominal assets...