Liquidity and real equilibrium interest rates: a framework of analysis

This paper proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agentspecific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return and intertemporal allocation.