In the Lagos-Wright model of money, monetary frictions alone cannot be a source of equilibrium multiplicity. However, the conclusion depends on the assumption that the agents always enter the centralized market after completing a transaction in the decentralized markets. In this paper, we...

Many authors argue that financial constraints have been tightened in several countries since the Great Recession in 2007–2009. To explain this, we construct a model in which borrowing constraints for firms are tightened as a result of mass default due to a bubble collapse. In Jermann and...

We develop a simple macroeconomic model that captures key features of a liquidity crisis. During a crisis, the supply of short-term loans vanishes, the interest rate rises sharply, and the level of economic activity declines. A crisis may be caused either by self-ful lling beliefs or by...

This paper uses a simple heterogeneous-agent economy model to show that redistribution of wealth among heterogeneous agents can play a significant role in business cycle dynamics and financial crises. In an economy where firms with heterogeneous productivity operate under borrowing constraints,...

We investigate a monetary model in which the centralized market opens once, but the decentralized markets open twice in each period. We show that there may be multiple stationary equilibria.

We study a monetary model in which buyers choose search intensity and prices are considered as given in a decentralized market. We indicate that the Friedman rule may not be optimal.