This paper studies dynamic general equilibrium models where firms trade capital in frictional markets. Gains from trade arise due to ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market; others acquire it in the secondary market. Cases are...

We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions. We distinguish between full and...

This working paper was written by Chao Gu (University of Missouri), Guido Menzio (New York University and NBER), Randall Wright (Zhejiang University, University of Wisconsin - Madison and NBER) and Yu Zhu (Bank of Canada).During the financial crisis, relatively centralized markets functioned...

During the financial crisis apparently centralized markets continued to function while trade in OTC markets froze. We use search-and-bargaining theory to ascertain conditions that allow trade to temporarily freeze in decentralized markets, focusing on the roles of liquidity and self-fulfilling...

We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions. We distinguish between full and...

We build models with an interest-bearing central bank digital currency (CBDC) to investigate whether the interest-bearing CBDC can lead to financial disintermediation. Our model of CBDC and banking captures a key feature of an intermediated CBDC system that idle CBDC can be converted into...

We discover a consumption channel of monetary policy in a model with money and government bonds. When the central bank withdraws government bonds (short-term or long-term) through open market operations, it lowers re- turns on bonds. The lower return has a direct negative impact on consumption...

We propose a new international monetary system based on carbon currency (the carbon standard) to tackle two pressing externalities in today’s global economic and political context: the dangerous and irreversible effects caused by unconstrained green-house gas emissions and the cost to the rest...

We build models with an interest-bearing central bank digital currency (CBDC) to investigate the impacts of issuing CBDC on banking and the macroeconomy. When CBDC is the only asset, a higher interest rate on CBDC does not necessarily lead to financial disintermediation. It could promote bank...