Intermediary cost and coexistence puzzle

The coexistence puzzle is explained via an interaction between intermediary cost and uncertainty with regards to consumption trade. If a trade opportunity as a buyer is more likely to arise, ex-ante net return on bond at the margin would be negative up to a certain amount of transactions and, therefore, agents are willing to hold money in the presence of an interest-bearing bond.

► Coexistence puzzle is explained via an interaction between intermediary cost and uncertainty on transaction. ► Ex-ante net return on bond depends on trade opportunity and expected consumption purchase. ► It can be negative up to a certain amount if the likelihood of trade as a buyer is high enough. ► This critical level of amount relies on the expected consumption purchase.