TY  - JOUR
TI  - Optimal Liquidity and Risk-free Asset Portfolio
T2  - HSE Economic Journal 
IS  - HSE Economic Journal 
KW  - «sound money»
KW  - monetary expansion
KW  - «structured» finance
KW  - stochastic discounting factor
KW  - Euler's Method
AB  - Monetary financing of huge spending aimed to fight the pandemic had taken place under the unique and extremal circumstances. However, it also has long-term implications due largely to the accelerated increases in the value of financial assets. A simple model is proposed to study the complex and prolong process of normalizing money and finance. The latter is viewed as restructuring of the macro-financial portfolio of assets, which is subject to the stochastic dynamic of broad money. Such a model is focused on one of the most important macro-financial relationships: the optimal amount of liquidity must be adequately collateralized by the value of real wealth. If this condition is realized then an effective financial system could be formed. The provision of loans in such a system is secured and revenues of a risk-free asset portfolio are ade quate to repay all liabilities outstanding. In the short term, the riskless rate of return is similar to the rate of a macro-financial repo transaction. In the long run, the risk-free rate of return correspondence to a «neutral» interest rate has to be justified by the zero covariance of returns with the stochastic discount factor. Large deviations from the optimum of money, by disrupting the best configuration of assets and liabilities, cause undesirable consequences: either an illiquidity crisis or the credit expansion ending in a complete breakdown of the financial system.
AU  - Alexander Smirnov
UR  - https://ej.hse.ru/en/2021-25-2/476334717.html
PY  - 2021
SP  - 196-226
VL  - 25