scarce collateral the term premium and quantitative easing abstract a model of money credit and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium an upward sloping nominal yield curve purchases of long maturity government debt by the central bank are always a good idea but for unconventional reasons a floor system is preferred to a channel system as a floor system permits welfare improving asset purchases by the central bank

competitive search equilibrium in monetary economies abstract competitive search was recently introduced in monetary economics by rocheteau and wright money in search equilibrium in competitive equilibrium and in competitive search equilibrium econometrica 73 2005 175 203 we extend their work by eliminating the restriction that the fees market makers charge to enter a submarket must be either non negative or identical for buyers and sellers without this restriction buyers pay a positive fee to enter the submarket they visit and nothing else when they meet a seller sellers are remunerated by the market makers from the entry fees collected from the buyers this trading arrangement allows buyers to perfectly predict their expenses so the opportunity cost of holding idle money balances is eliminated

the labor market four years into the crisis assessing structural explanations four years after the beginning of the great recession the labor market remains historically weak many observers have concluded that structural impediments to recovery bear some of the blame the author reviews such structural explanations but after analyzing u s data on unemployment and productivity he finds there is little evidence supporting these hypotheses he finds that the bulk of the evidence is more consistent with the hypothesis that continued poor performance is primarily attributable to shortfalls in the aggregate demand for labor

skill demands and mismatch in u s manufacturing recent economic events have sparked debates over the degree of structural mismatch in the u s economy one of the most frequent claims is that workers lack the skills that employers demand the existing literature however analyzes this potential mismatch at a high level of aggregation with abstract indices and noisy proxies that obscure the underlying mechanisms the authors address these issues by presenting and analyzing results from a survey of u s manufacturing establishments the survey is the first to their knowledge to directly measure concrete employer skill demands and hiring experiences in a nationally representative survey at the industry level the findings indicate that demand for higher level skills is generally modest and that three quarters of manufacturing establishments do not show signs of hiring difficulties among the remainder demands for higher level math and reading skills are significant predictors of long term vacancies but demands for computer skills and other critical

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

a uniqueness proof for monetary steady state abstract the framework in lagos and wright 2005 20 combining decentralized and centralized markets is used extensively in monetary economics much is known about that model but there is a loose end only under special assumptions about bargaining power or decentralized market preferences has it been shown that the monetary steady state is unique for general decentralized market utility and bargaining i prove uniqueness for generic parameters with fiat money and for all parameters with commodity money as a corollary i get monotone comparative statics

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

liquidity and asset prices in a monetary model with otc asset markets abstract we study how asset prices are affected by the amount of liquidity that is available in over the counter asset markets where dealers post prices and quantities at which they are willing to buy and sell assets we find that higher levels of market liquidity lead to higher asset prices and lower bid ask spreads hence an increase in inflation which lowers market liquidity increases asset returns and decreases asset prices when agents immediate consumption needs are stochastic asset prices will fluctuate even though asset fundamentals are unchanging the fluctuations in asset prices reflect the stochastic availability of market liquidity that results from agents changing consumption opportunities

sticky prices a new monetarist approach why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level in many models prices are sticky by assumption here it is a result we use search theory with two consequences prices are set in dollars since money is the medium of exchange and equilibrium implies a nondegenerate price distribution when the money supply increases some sellers may keep prices constant earning less per unit but making it up on volume so profit stays constant the calibrated model matches price change data well but in contrast to typical sticky price models money is neutral jel e52 e31 e42

a model of money with multilateral matching we develop a model of decentralized monetary exchange to examine the distributional effects of inflation across heterogeneous agents the agents have private information about their productivity preferences or money holdings matching is multilateral and each seller is visited by a stochastic number of buyers the good is allocated according to a second price auction in money in equilibrium homogeneous buyers hold different amounts of money leading to price dispersion we find the closed form solution for the distribution of money holdings entry of sellers is suboptimal except at the friedman rule inflation acts as a regressive tax

optimal money creation in pure currency economies a conjecture in a pure currency economy money is the only durable object and people have private histories in such economies taxation is not feasible and in some of them trade is enhanced through the use of money for economies of that kind in which a nondegenerate distribution of money part of the state of the economy affects trades and real outcomes and in which trades affect the state at the next date the conjecture is that there are transfer schemes financed by money creation that improve ex ante representative agent welfare relative to what can be achieved holding the stock of money fixed jel codes e52 e58 copyright 2014 oxford university press

search inflation and capital accumulation abstract this paper constructs a model to integrate the search monetary theory into a neoclassical growth model with divisible goods and money the model is used to examine the relationship between money growth and capital accumulation the framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by increasing the number of agents in the market this positive extensive effect on the number of trades can dominate the conventional negative intensive effects of money growth on individuals labor input and real money balance in which case increasing the money growth rate increases aggregate capital and output

coexistence of money and interest bearing securities abstract a random matching model with money is used to study the nominal yield on small denomination bearer safe discount securities issued by the government there is always one steady state with matured securities circulating at par and for some parameters another with them circulating at a discount in the former a necessary and sufficient condition for a positive nominal yield on not yet matured securities is exogenous discriminatory treatment of them by the government in the latter the post maturity discount on securities induces a deeper pre maturity discount even without such discriminatory treatment

monetary policy and asset prices a mechanism design approach we investigate the eects of monetary policy on asset prices in economies where assets are traded periodically in over the counter otc markets with bilateral meetings between buyers and sellers the trading mechanism in pairwise meetings is designed to maximize social welfare taking as given the frictions in the environment e g lack of commitment and limited enforcement and monetary policy we show that asset price bubbles emerge in a constrained e cient monetary equilibrium only if liquidity is abundant and the rst best allocation is implementable in contrast if liquidity is scarce assets are priced at their fundamental value in any constrained e cient monetary equilibrium in which case an increase in in ation has no eect on asset prices but it reduces output and welfare finally for low in ation rates the bursting of an asset price bubble can be an optimal response to a shock that reduces assets resalability

interest rates and inflation a consensus has emerged among practitioners that the instrument of monetary policy ought to be the short term interest rate that policy should be focused on the control of inflation and that inflation can be reduced by increasing short term interest rates at the center of this consensus is a rejection of the quantity theory such a rejection is a difficult step to take given the mass of evidence linking money growth inflation and interest rates increases in average rates of money growth are associated with equal increases in average inflation rates and interest rates these observations need not rule out a constructive role for the use of short term interest rates as a monetary instrument one possibility is that increasing short term rates in the face of increases in inflation is just an indirect way of reducing money growth sell bonds and take money out of the system another possibility is that while control of monetary aggregates is the key to low long run average inflation rates an interest rate policy can improve the short run behavior of interest rates and prices the shortrun connections among money growth inflation and interest rates are very unreliable so there is much room for improvement these possibilities are surely worth exploring but doing so requires new theory the analysis needed to reconcile interest rate policies with the evidence on which the quantity theory of money is grounded cannot be found in old textbook diagrams

skills mismatch concepts measurement and policy approaches the term skills mismatch is very broad and can relate to many forms of labour market friction including vertical mismatch skill gaps skill shortages field of study horizontal mismatch and skill obsolescence in this paper we provide a clear overview of each concept and discuss the measurement and inter relatedness of different forms of mismatch we present a comprehensive analysis of the current position of the literature on skills mismatch and highlight areas which are relatively underdeveloped and may warrant further research using data from the european skills and jobs survey we assess the incidence of various combinations of skills mismatch across the eu finally we review the european commission s country specific recommendations and find that skills mismatch when referring to underutilized human capital in the form of overeducation and skills underutilization receives little policy attention in cases where skills mismatch forms part of policy recommendations the policy advice is either vague or addresses the areas of mismatch for which there is the least available evidence

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

a monetary explanation of the equity premium term premium and risk free rate puzzles this paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default free bonds the key feature of the model is that some assets other than money play a special role in facilitating transactions which affects the rate of return that they offer the model is capable of producing a low risk free rate a high equity premium and an average positive relationship between maturity and term premium for default free bonds the model s implications for the joint distribution of asset returns velocity inflation money growth and consumption growth are also compared to the behavior of these variables in the u s economy

money and credit with limited commitment and theft we study the interplay among imperfect memory limited commitment and theft in an environment that can support monetary exchange and credit imperfect memory makes money useful but it also permits theft to go undetected and therefore provides lucrative opportunities for thieves limited commitment constrains credit arrangements and the constraints tend to tighten with imperfect memory as this mitigates punishment for bad behavior in the credit market theft matters for optimal monetary policy but at the optimum theft will not be observed in the model the friedman rule is in general not optimal with theft and the optimal money growth rate tends to rise as the cost of theft falls

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

employee voice human resource practices and quit rates evidence from the telecommunications industry the authors draw on strategic human resource and industrial relations theories to identify the sets of employee voice mechanisms and human resource practices that are likely to predict firm level quit rates then empirically evaluate the predictive power of these variables using data from a 1998 establishmentlevel survey in the telecommunications industry with respect to alternative voice mechanisms they find that union representation predicts lower quit rates even after they control for compensation and a wide range of other human resource practices that may be affected by collective bargaining also predicting lower quit rates is employee participation in offline problem solving groups and in self directed teams no apparent association is found between quit rates and the availability of nonunion dispute resolution procedures regarding human resource practices higher relative wages and internal promotion policies predict lower quit rates and contingent staffing electronic monitoring and variable pay predict higher rates

liquidity monetary policy and the financial crisis a new monetarist approach a model of public and private liquidity integrates financial intermediation theory with a new monetarist monetary framework nonpassive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the friedman rule a liquidity trap can exist in equilibrium away from the friedman rule and there exists a permanent nonneutrality of money driven by an illiquidity effect financial frictions can produce a financial crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income jel e13 e44 e52 e62 g01 liquidity is a class of assets that is useful in exchange some of these liquid assets are government liabilities federal reserve notes treasury bills and treasury notes some are private liabilities the deposit liabilities of banks and some asset backed securities for example conventional wisdom holds that the main role of a central bank is to manage public liquidity in a manner that controls inflation and enhances the provision of private liquidity and credit however the mechanism by which central bank actions work to perform this role still appears to be poorly understood as has been highlighted by the financial crisis and the ensuing policy responses the purpose of this paper is to build a model of public and private liquidity that captures the features of modern economies essential to the analysis of monetary policy and that can be used to shed light on some current monetary policy problems and questions what is a liquid asset and what roles do privately provided and publicly provided liquid assets play in exchange in a model where we capture these roles for liquid assets what are the implications for monetary policy under what circumstances can a liquidity trap occur how does monetary policy work when there is a positive quantity of excess reserves held by banks what does a financial crisis do to the supply of private liquidity and what should monetary policy do in response

monetary policy in a channel system abstract channel systems for conducting monetary policy are becoming increasingly popular despite its popularity the consequences of implementing policy with a channel system are not well understood we develop a general equilibrium framework of a channel system and study the optimal policy a novel aspect of the channel system is that a central bank can tighten or loosen its policy without changing its policy rate this policy instrument has so far been overlooked by a large body of the literature on the optimal design of interest rate rules

trade dynamics in the market for federal funds we develop a model of the market for federal funds that explicitly accounts for its two distinctive features banks have to search for a suitable counterparty and once they have met both parties negotiate the size of the loan and the repayment the theory is used to answer a number of positive and normative questions what are the determinants of the fed funds rate how does the market reallocate funds is the market able to achieve an efficient reallocation of funds we also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

competitive pricing and efficiency in search equilibrium we consolidate and generalize some results on price determination and efficiency in search equilibrium extending models by rubinstein and wolinsky and by gale heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition when the discount rate r and search costs converge to 0 we show that prices in all exchanges are the same and equal the competitive market clearing price given positive search costs efficiency obtains iff bargaining satisfies hosios condition and r 0 when prices are set by third party market makers however we show that search equilibrium is necessarily efficient

liquidity provision interest rates and unemployment abstract the effective liquidity supply of the economy the weighted sum of all assets that serve as media of exchange matters for interest rates and unemployment we formalize this idea by adding an over the counter market with collateralized trades to the mortensen pissarides model an increase in public liquidity through a higher supply of real government bonds raises the real interest rate crowding out private liquidity and increasing unemployment if unemployment is inefficiently high keeping liquidity scarce can be socially optimal a liquidity crisis affecting the acceptability of private assets as collateral widens the rate of return difference between private and public liquidity also increasing unemployment

scarcity of safe assets inflation and the policy trap abstract a goal of this paper is to make sense of the seemingly puzzling behavior of interest rates and inflation and the role of central banks in that behavior during and after the great recession particularly in the united states to this end we construct a model in which government debt plays a key role in exchange and can bear a liquidity premium if asset market constraints bind then there need not be deflation under an indefinite zero interest rate policy zirp further zirp may not be optimal under these circumstances a taylor rule central banker could be subject to a zirp trap and persistently undershoot target inflation as well a liquidity premium on government debt creates additional taylor rule perils because of a persistently low real interest rate we make a case that this is the key policy predicament currently faced by many central banks in the world

government transaction policy media of exchange and prices abstract we study government transaction policies in search theoretic models of money we model government as a subset of agents who are subject to the same random matching technology and other constraints as private agents but who behave in an exogenous way regarding which objects they accept in trade and at what price the objective is to see how these policies affect private agents strategies and hence the set of equilibria we analyze how the effects depend on factors like the size of government the intrinsic properties of money and the availability and efficacy of substitutes like barter or foreign currency journal of economic literature classification numbers c78 e31 e42

asset market participation and portfolio choice over the life cycle using error free data on life cycle portfolio allocations of a large sample of norwegian households we document a double adjustment as households age a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement when structurally estimating an extended life cycle model the parameter combination that best fits the data is one with a relatively large risk aversion a small per period participation cost and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in norway

sluggish responses of prices and inflation to monetary shocks in an inventory model of money demand we examine the responses of prices and inflation to monetary shocks in an inventory theoretic model of money demand we show that the price level responds sluggishly to an exogenous increase in the money stock because the dynamics of households money inventories leads to a partially offsetting endogenous reduction in velocity we also show that inflation responds sluggishly to an exogenous increase in the nominal interest rate because changes in monetary policy affect the real interest rate in a quantitative example we show that this nominal sluggishness is substantial and persistent if inventories in the model are calibrated to match u s households holdings of m2

contingent prices and money price posting with directed search is a widely used trading mechanism coles and eeckhout showed that if sellers are allowed to post prices contingent on realized demand instead of one price then there is real market indeterminacy in this article we fit this contingent price posting protocol into a monetary economy we show that as long as holding money is costly there exists a unique equilibrium rather than a continuum in this equilibrium sellers post a low price for when the buyer is alone a high price for when several buyers show up and buyers randomize between sellers and money holdings

open market operations abstract in an open market operation the central bank swaps currency for bonds we show how injecting money in this way is different from transfers the way policy is usually formulated the model captures liquidity explicitly by modeling the roles of assets in frictional exchange under various specifications for market structure and the acceptability or pledgeability of assets we discuss implications for the fisher and quantity equations the possibility of negative nominal yields liquidity traps and market segmentation when liquidity is endogenized using information theory multiple equilibria emerge with different policy predictions interest on reserves and quantitative easing are discussed