INNOVATIONS IN LIQUIDITY AND FINANCIAL ASSET YIELDS IN A MODEL OF CAPITAL UTILIZATION BY FIRMS

The role of money and other financial assets in the utilization of capital goods in elucidated through an integration of portfolio and inventory approaches to the demand for money by firms. In this model, cash balances and/or financial asset withdrawals are used to fund operating costs that have a positive impact on the yield to physical capital. Financial innovations, interest rate controls, and inflation are analyzed in terms of the effects of the cost of holding cash balances and the yield and liquidity of other financial assets on the liquidity management and capital utilization decisions of a profit-maximizing firm. © 1990.