Discussion of “Information and Liquidity”

Authors


  • This paper has been prepared for the conference on “Liquidity in Frictional Markets” held at the Federal Reserve Bank of Cleveland on November 14 and 15, 2008. I thank participants of the conference, Yiting Li, Pierre-Olivier Weill, and Randy Wright for useful comments. I also thank Monica Crabtree-Reusser for editorial assistance.

Abstract

I discuss the model of asset liquidity by Lester, Postlewaite, and Wright (2011, this issue, Forthcoming). I consider a model with bilateral matching and bargaining in which a perfectly divisible asset serves as means of payment. A recognizability problem is introduced by assuming that the asset can be counterfeited at a positive cost. In contrast to Lester, Postlewaite, and Wright, in equilibrium sellers always accept objects that they do not recognize. The private information problem manifests itself by smaller quantities traded in uninformed matches.

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