assets are likely to serve as media of exchange or collateral (a definition of liquidity often employed in monetary theory …), or that they can be easily sold in a secondary market, if needed (a definition of liquidity closer to the one adopted in … finance)? We develop a model where these two notions of asset liquidity coexist, and their relative importance is determined …

determine asset liquidity. In our model, two asset suppliers try to profit from the liquidity services their assets confer …. Asset liquidity is indirect in the sense that assets can be sold for money in over-the-counter (OTC) secondary markets … liquidity of two assets. Asset demand curves can slope upward for evenmodest degrees of increasing returns in the matching …

liquid portfolios, but liquidity comes at a cost: inflation. The OTC market serves as a secondary asset market, in which … agents can rebalance their positions depending on their liquidity needs. Hence, a contribution of our paper is to provide a …

rates of return to compensate agents for their relative lack of liquidity. Consistent with empirical findings, our model …