LIQUIDITY MODELS IN OPEN ECONOMIES - THEORY AND EMPIRICAL-EVIDENCE

This paper presents an overview of recent theoretical and empirical re search on 'liquidity models' in open economies; this is a class of opt imizing models where money has effects on real asset prices and econom ic activity without relying on the 'ad-hoc' assumption of price/wage s tickiness. The non-neutrality of money derives from a temporary segmen tation between goods and asset markets. After surveying the theoretica l literature on liquidity models, we present empirical evidence based on VAR econometric techniques for the seven major industrial countries , Such evidence is shown to be consistent with the main implications o f the liquidity models.