How will capital market imperfections, such as private information and costly state verification, affect international capital market flows between countries that are identical in every way but their initial capital stocks? To answer this question, we devise a dynamic infinite-horizon model with...

Private information and costly state verification often result in credit rationing in models with smooth investment, affecting both loan size and total investment. The optimal contract is derived in a dynamic stochastic growth model with capital for two types of models: one with symmetric...

This paper develops a method to solve and simulate cash-in-advance models of money and asset prices. The models are calibrated to US data spanning the period from 1890 to 1987 and are used to study some empirical regularities observed in the US data over this period. The phenomena which are the...

Adverse selection economies with private information are generally studied under the assumption that contracts are exclusive. That is, retrading is prohibited. An alternative market mechanism, the anonymous mechanism, is studied here. Risk averse agents trade contingent claims directly and side...