Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where CCPs are necessary to implement efficient trade when trades are time-critical, liquidity is limited and there is limited enforcement of trades. We then show that --...

In a model with matching frictions, we provide conditions under which repurchase agreements (or repos) co-exist with asset sales. In a repo, the seller agrees to repurchase the asset at a later date at the agreed price. Absent bilateral trading frictions, repos have no role despite uncertainty...

reneging on obligations.

We study economies where improving the quality of institutions -- modelled as improving contract enforcement -- requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine...

We study the nature of monetary policy in a model where uncertainty can lead to a discrepancy between economic agents' beliefs and true fundamentals. Monetary policy transmits information about fundamentals. The public nature of this information can help agents to coordinate their decisions....

Differently sophisticated and informed investors coexist in most asset markets. At the same time, differently opaque trading avenues also coexist in most markets. We describe a simple environment where the second-best allocation calls precisely for this juxtaposition. Informed investors are...

We use mechanism design in order to study efficient arrangements when the ability of agents to perform certain welfare-improving transactions is subject to random and unobservable shocks. We study implementation via a payment system that involves assigning balances to participants and optimally...

Dealers intermediate transactions between buyers and sellers in many markets. In particular this is true in nancial markets where many contracts are over-the-counter (OTC), especially derivatives: they are negotiated bilaterally and subject their users to the risk of counterparty default. Nearly...