By developing a class of dynamic stochastic general equilibrium models with nominal rigidities and assuming a two-country currency union with sovereign risk, we show that there is not necessarily a trade-off between the prevention of default risk and stabilizing inflation. Under optimal monetary...

Standard New Keynesian models have often neglected temporary sales. In this paper, we ask whether this treatment is appropriate. In the empirical part of the pa- per, we provide evidence using Japanese scanner data covering the last two decades that the frequency of sales was closely related...

This paper introduces financial market frictions into a standard New Keynesian model through search and matching in the credit market. Under such financial mar- ket frictions, a second-order approximation of social welfare includes a term involv- ing credit, in addition to terms for inflation...

This paper presents a three-period model to analyze the endoge- nous need for bank reserves in the presence of Treasury securities. The model highlights the fact that the interbank market is an over- the-counter market. It characterizes the large value payment system operated by the central bank...

In this paper, we extend the concept of rational-expectations equilibrium, from a traditional single-belief framework to a multi-belief one. In the traditional framework of single belief, agents are supposed to know the equilibrium price “correctly.” We relax this requirement in the...

Uncertainty faced by individual firms appears to be heterogeneous. In this paper, I construct new empirical measures of firm-level uncertainty using data from the I/B/E/S and Compustat. These new measures reveal persistent differences in the degree of uncertainty facing individual firms not...

This paper considers the macroeconomic effects of retailers' market concentra- tion and buyer-size discounts on inflation dynamics. During Japan's "lost decades," large retailers enhanced their market power, leading to increased exploitation of buyer-size discounts in procuring goods. We...

In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that...

This paper analyzes the distinction between payment instruments and collateral in the interbank payment system. Given the interbank market is an over-the-counter market, decentralized settlement of bank transfers is inefficient if bank loans are illiquid. In this case, a collat- eralized...

The effect of accepting more immigrants on welfare in the presence of a pay-as-you- go social security system is analyzed qualitatively and quantitatively. First, it is shown that if initially there exist intergenerational government transfers from the young to the old, the government can lead...