This article studies the full equilibrium dynamics of an economy with financial frictions. Due to highly nonlinear amplification effects, the economy is prone to instability and occasionally enters volatile crisis episodes. Endogenous risk, driven by asset illiquidity, persists in crisis even...

We show that it is impossible to achieve collusion in a duopoly when (a) goods are homogenous and firms compete in quantities; (b) new, noisy information arrives continuously, without sudden events; and (c) firms are able to respond to new information quickly. The result holds even if we allow...

A quantitative investigation of financial intermediation in the United States over the past 130 years yields the following results: (i) the finance industry's share of gross domestic product (GDP) is high in the 1920s, low in the 1960s, and high again after 1980; (ii) most of these variations can be...

We study the design of interventions to stabilize financial markets plagued by adverse selection. Our contribution is to analyze the information revealed by participation decisions. Taking part in a government program carries a stigma, and outside options are mechanism dependent. We show that...