The Marketability Component in the Gross Market Rate of Interest, the Yield Curve and Artificial Liquidity
The Marketability Component in the Gross Market Rate of Interest, the Yield Curve and Artificial Liquidity

Author(s): Philipp Bagus
Subject(s): Economy, Business Economy / Management, Economic policy, Political economy
Published by: Addleton Academic Publishers
Keywords: Walter Block; marketability component; yield curve; gross market rate of interest; artificial liquidity;
Summary/Abstract: I argue that there exists a tendency for an upward sloping yield curve implied in the axiom of human action. This tendency is implicit in Mises’ treatment of secondary media of exchange. I provide a praxeological explanation of the marketability component in the gross market rate of interest. In a world of uncertainty, actors watch their liquidity position. They prefer to be liquid rather than illiquid. For their liquidity position, not only cash is relevant but also the marketability of their other assets in relation to their debt structure. I distinguish natural from artificial marketability. My findings have important consequences for the yield of financial assets, maturity mismatching, the structure of production, and the liquidity positions over the business cycle.

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