ECON 4533 Topics on Liquidity in Macro Finance

What properties of an economic environment lead to liquidity differences across assets and over time? How does asset illiquidity prevent efficient allocations? What are the macroeconomic effects of changes in liquidity? What are the effects of policy interventions in illiquid asset markets?
This class will cover recent theoretical research on asset liquidity in the financial economics and in the macroeconomic literature. We will study formal models that are between macroeconomics, microeconomics and finance. The first part will cover search-and-matching models of over-the-counter markets. In search-and-matching models, the liquidity of assets is determined by a feature of the physical environment: the meeting technology is assumed to be imperfect. Namely, some gains from trade do not materialize because sellers and buyers cannot find each other instantly. This represents actual physical limitations of the transaction technology (think of the time consuming process of purchasing a house or finding investors for a new venture), and is sometimes thought to stand in for a broad range of informational frictions. In the second part, illiquidity will arise explicitly from moral hazard, enforcement, and asymmetric information frictions. We will show how such market imperfections can prevent asset trades. This second part will also emphasize some macroeconomic consequences of these frictions.


Pierre-Olivier Weill y Saki Bigio


Microeconomía III, Macroeconomía III, Econometría I; sexto semestre.