serial: Focus on Transition, p. 30-66
The paper studies a model of portfolio optimization by a financial institution in discrete time under uncertainty, with explicit distinct preferences for liquidity at every date in the future. The solution of the model and the resulting equilibrium implies a particular relation of the lending rate to the zero-coupon yield curve. Further, equilibrium pricing rules for bonds, swaps and corporate claims explain ambiguous impacts on this economy, of the key rate changes by the central bank.
Cosati: 05D, 12B