Monetary policy tweaks could boost welfare in asset markets!
The article explores how monetary policy impacts asset prices and liquidity in over-the-counter markets. Agents can choose between a liquid asset for immediate spending and an illiquid asset for long-term value storage. When a consumption opportunity arises, agents can exchange illiquid assets for liquid ones in a secondary market. The study shows that search and bargaining frictions in this market can actually improve welfare when inflation is low.