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We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of monetary policy. We also show asset prices are higher in liquidity-constrained states of nature. This generates a term premium even in absence of aggregate uncertainty. These results hold in any monetary economy with heterogeneous agents and short-term liquidity effects, where monetary costs act as transaction costs and the quantity theory of money is verified.

Transaction costs. --- Externalities (Economics) --- Cost --- Right of property --- Costs, Social --- External economies and diseconomies --- External effects (Economics) --- Social costs --- Economics --- Public goods --- Waste (Economics) --- Welfare economics --- Banks and Banking --- Investments: Commodities --- Finance: General --- Macroeconomics --- Money and Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Inflation --- Deflation --- Portfolio Choice --- Investment Decisions --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Commodity Markets --- Finance --- Monetary economics --- Investment & securities --- Asset prices --- Liquidity --- Monetary base --- Commodities --- Short term interest rates --- Prices --- Money supply --- Commercial products --- Interest rates