The paper presents a two-period Walrasian financial market model composed of informed and uninformed rational investors, and noise traders. The rational investors maximize second period consumption utility from the payoffs of trading risk-free holdings to risky assets in the first period. The...

Liquid money controlled by a trustworthy central bank can serve as an insurance against external surprises such as stock market crashes, bank fails and other setbacks that endanger the yield of illiquid savings. In turbulent times, the insurance property of money is particularly accentuated. The...