TY  - JOUR
AU  - Giovannini,Alberto
TI  - Uncertainty and Liquidity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2296
PY  - 1989
Y2  - November 1989
UR  - http://www.nber.org/papers/w2296
L1  - http://www.nber.org/papers/w2296.pdf
N1  - Author contact info:
Alberto Giovannini
Unifortune Asset Management
Via Donizetti 53
20122 Milano, Italy
E-Mail: alberto.giovannini@alum.mit.edu
AB  - 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.
ER  -