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Monetary search models are difficult to analyze unless the distribution of money holdings is made degenerate. Popular techniques include using an infinitely large household (Shi 1997) and adding a centralized market with quasi-linear utility (Lagos and Wright 2005). Wallace (2002) suggests as an...
Persistent link: https://www.econbiz.de/10005090760
How can a particular allocation and prices be implemented? Under what conditions does a policy deliver a unique competitive equilibrium? How many degrees of freedom there are in the determination of the policy variables, or how many are the instruments of policy? In this paper we analyze a...
Persistent link: https://www.econbiz.de/10005085431
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We study general equilibrium with nonconvexities. In these economies there exist sunspot equilibria without the usual assumptions needed in convex economies, and they have good welfare properties. Moreover, in these equilibria, agents act as if they have quasi-linear utility. Hence wealth...
Persistent link: https://www.econbiz.de/10004977942
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During financial disruptions, marketmakers provide liquidity by absorbing external selling pressure. They buy when the pressure is large, accumulate inventories, and sell when the pressure alleviates. This paper studies optimal dynamic liquidity provision in a theoretical market setting with...
Persistent link: https://www.econbiz.de/10005027283
We show that price stickiness is predicted by the theory of second best, applied to a random- matching model of money. The economy is hit with iid, aggregate, preference shocks, and allocations are allowed to be history dependent. Due to individual anonymity and lack of commitment, implementable...
Persistent link: https://www.econbiz.de/10005069287
Prior to 1863, state chartered banks in the United States issued notes -- dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at the discount outside the local area. These discounts varied by both the...
Persistent link: https://www.econbiz.de/10005069294
A settlement system is a set of rules and procedures that govern when and how funds are transferred between banks. Perhaps the most crucial feature of a settlement system is the frequency with which settlement occurs. On the one hand, a higher frequency of settlement limits the risk of default...
Persistent link: https://www.econbiz.de/10005069347
We use a modified version of the Lagos-Wright model to introduce an essential role for banks. Due to preference shocks, agents have excess demand for or supply of money balances. Banks arise to reallocate excess cash by taking deposits from sellers and making loans to buyers. We consider two...
Persistent link: https://www.econbiz.de/10005069487