Essays on the Microfoundations of Asset Liquidity and Resale Premia

Chapter 1 of the thesis reviews and synthesises the literature on the role of money and assets in models with trading frictions. The main focus of the chapter is on how liquidity and resale premia shape asset prices and monetary transmission. In frictionless Walrasian settings, neither money nor financial assets are essential for exchange, and asset values reflect only discounted dividends. Once search and decentralised trade are introduced, however, assets acquire additional value as media of exchange or as instruments of resale, leading to systematic deviations from standard asset pricing predictions. By comparing these two strands of theory, the chapter highlights the mechanisms through which frictions in asset exchange alter equilibrium valuations, monetary policy transmission, and the structure of risk premia in modern financial economies. Chapter 2 of the thesis examines asset pricing with collateral and resale premia. Asset prices respond ambiguously to monetary policy: easing sometimes lowers dividend yields, as in traditional and collateral/liquidity-based monetary-style asset models, and sometimes raises them, as in monetary resale premium models. This chapter reconciles these views by developing a monetary over-the-counter (OTC) model where assets serve both as collateral for goods and asset purchases and as resaleable securities. The framework generates both collateral and resale premia, explaining why dividend yields can move in opposite directions under monetary easing/tightening. Further, we show that policy remains effective in the cashless limit, and that the cashless limit equilibrium differs from the nonmonetary equilibrium, highlighting that money's role cannot be abstracted from asset pricing. Chapter 3 of the thesis considers asset price dispersion, monetary policy, and macroprudential regulation. Following the 2007-2009 Global Financial Crisis, sustained monetary expansion and tighter financial regulation have left financial markets thinner, less resilient, and more prone to instability. This chapter develops a monetary model of decentralised financial exchange to account for these outcomes. The framework links search frictions and costly posting to the joint effects of monetary and regulatory policy on asset prices, quoting behaviour, and market stability. Increases in inflation or posting costs reduce quoting intensity, widen the distribution of executable prices, and raise the probability of trading breakdowns. The model replicates key post-crisis patterns such as wider spreads, higher execution costs, and an increased likelihood of flash-crash events, showing that the interaction between monetary and regulatory policy can unintentionally increase financial market fragility.

Author dc:creator

• Mishricky, Simon

Language dc:language.iso

en_AU

Handle dc:identifier.uri

https://hdl.handle.net/1885/733808530

OAI identifier oai:identifier

oai:openresearch-repository.anu.edu.au:1885/733808530