Typography

I like to say that everything is money, which is just another way of saying that all goods are liquid to some degree or other. Whether it be a house, a banknote, or ice cream, each of these items carries a liquidity premium. How large are these liquidity premia? It's difficult to get good measurements, but there are a few venues that offer a glimpse of this rare beast. One of them is equity markets. More specifically, we can use restricted stock studies to tease out liquidity premia. Imagine that your shares in Microsoft, normally so easily exchanged on various stock markets like the New York Stock exchange or NASDAQ, were restricted for a period of time in a way that prevented you from trading them. Apart from this impairment, your illiquid Microsoft shares are exactly like any other Microsoft share: they provide you with a dividend, voting power, and a contingent claim on firm assets should Microsoft decide to wind up the business. The price you'd be willing to pay to own t...

Milton Friedman's alleged license plate, showing the equation of exchange The excruciatingly large revisions that U.S. first quarter GDP growth underwent from the BEA's advance estimate (+0.1%, April 30, 2014) to its preliminary estimate (-1.0%, May 29, 2014) and then its final estimate (-2.9%, June 25m, 2014) left me scratching my head. Isn't there a more timely and accurate measure of spending in an economy? One interesting set of data I like to follow is the Fedwire Fund Service's monthly , quarterly , and yearly statistics. Fedwire, a real time gross settlement interbank payment mechanism run by the Federal Reserve*, is probably the most important financial utility in the U.S., if not the world. Member banks initiate Fedwire payments on their own behalf or on behalf of their clients using the Fedwire common currency: Fed-issued reserves. Whenever you wire a payment to another bank in order to settle a purchase, you're using Fedwire. Since a large percentage o...

I'm going on holiday and don't have enough time to write anything new. At the risk of being repetitive, here's a recapitulation of what is one of this blog's major themes: the idea of moneyness. Most of the component parts are spread out over a couple of dozen posts written over many months—here I'll try and piece the whole quilt together in one spot. Money vs moneyness The initial point comes from one of my first posts (as well as a later one ). There are two ways of thinking about monetary phenomena. The standard way is to draw a line between all things in an economy that are "money" and all those things which are not. Deposits typically go in the money bin, widgets go in the non-money bin, dollar bills go in the money bin, labour goes in the non-money bin and so forth. The second approach, the one this blog takes, begins with the idea that all things in an economy are money-like. The line we are interested in here is the extent to which the value of ea...