money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

limited commitment and the demand for money understanding money demand is important for our comprehension of macroeconomics and monetary policy its instability has made this a challenge common explications for the instability are financial regulations and financial innovations that shift the money demand function we provide a complementary view by showing that a model where borrowers have limited commitment can significantly improve the fit between the theoretical money demand function and the data limited commitment can also explain why the ratio of credit to m1 is currently so low despite that nominal interest rates are at their lowest recorded levels this article is protected by copyright all rights reserved

corporate finance and monetary policy we develop a general equilibrium model where entrepreneurs finance random investment opportunities using trade credit bank issued assets or currency they search for bank funding in over the counter markets where loan sizes interest rates and down payments are negotiated bilaterally the theory generates pass through from nominal interest rates to real lending rates depending on market microstructure policy and firm characteristics higher banks bargaining power for example raises pass through but weakens transmission to investment interest rate spreads arise from liquidity regulatory and intermediation premia and depend on policy described as money growth or open market operations

estimating willingness to pay for housing characteristics an application of the ellickson bid rent model abstract the purpose of this paper is to estimate willingness to pay for housing characteristics using the discrete choice bid rent framework developed by b ellickson j urban econom 9 56 79 1981 and modified by s r lerman and c r kern j urban econom 13 358 363 1983 the paper provides an initial empirical test of the lerman and kern modifications using household level data from bogota colombia the results of the model are evaluated by comparing forecasted bid rents to actual rents and forecasted dwelling occupants to actual occupants by examining the demand prices which emerge from the analysis and by comparing the results to previous housing demand research which uses a hedonic type approach to analyze identical data the findings of the study show that the bid rent model works reasonably well in its predictions and in its estimates of the demand for attributes and in some ways it may perform better than a hedonic type model in forecasting the demand for housing attributes

a model of debit card as a means of payment abstract this paper provides an explanation for both the rapid growth in the use of a debit card over time and the cross sectional difference in the use of a debit card using a search theoretic model the trade off between cash and a debit card as means of payment is incorporated such that a buyer incurs disutility cost proportional to the amount of cash holdings while a seller accepting a debit card bears a fixed record keeping cost regardless of transaction amount as record keeping cost decreases with the development of information technology over time disutility cost of cash holdings required for pairwise trade eventually exceeds record keeping cost so that all the agents with different wealth levels choose to use a debit card as a means of payment also disutility cost of cash holdings required for pairwise trade would be higher for the rich than for the poor implying the cross sectional feature of payment pattern that the rich use a debit card more frequently than the poor there are two distinct mechanisms that improve welfare as record keeping cost decreases one is to reduce deadweight loss from holding cash and the other is to reduce its distortionary effect on output produced in pairwise trade

a model of rental housing choices in the korean market the main purpose of this study is to propose and estimate a model of korean rental housing choice using hierarchical logit analysis the study focuses on the examination of how households choose their dwelling units in a complex rental housing market the decision is viewed as a partial sequence process beginning with the choice of rental housing tenure and finishing with a decision on the type of occupation to examine an additional step in the urban spatial structure hedonic price technique is incorporated into a hierarchical logit model in addition the separate effects of permanent and transitory components of measured income are examined through the instrumental variables method based on human capital theory it is shown that the proposed model provides a potentially more useful method than another model the multinomial logit in analysing the korean rental housing market

liquidity constraints in a monetary economy this article presents a microfounded model of money with a consumption and an investment market we consider an economy in which only part of the investment returns can be pledged a liquidity constraint arises when the pledgeable part of the returns are not enough to pay for investment costs we show that when the liquidity constraint is binding agents may make a cash downpayment and money can perform two roles as a provider of liquidity services and exchange services the liquidity constraint constitutes a channel though which underinvestment occurs even at low inflation rates

decentralization trends of employment location and spatial policies in ldc cities rapid urbanization in developing countries has produced a heavy concentration of population and economic activity in a very few large urban centers this pattern of urban concentration has generated two major policy concerns i keeping the largest cities in these countries from getting too large and ii maintaining regional equity this paper reports the empirical findings from the bogota city study and draws some policy conclusions in the context of korean spatial policy experience it documents the observed decentralization trends of employment in bogota and cali using several sets of household survey data and the colombian social security data then it summarizes the theoretical and empirical framework developed for the location choice of manufacturing firms drawing on these behavioral underpinnings of the firm s location choice the paper evaluates several policy issues related to employment decentralization based on the policies implemented in the seoul region

bubbles in prices of exhaustible resources this article proposes a test for the presence of a bubble in the price of an exhaustible resource a bubble is accompanied by a rise in the storage to consumption ratio consumption peters out and a fraction of the original stock is held forever the test suggests there is a bubble in the price of oil and in the market for high end bordeaux wines but other explanations are also possible a bubble reduces welfare regardless of whether there are other stores of value particularly fiat money

a model of intraurban employment location an application to bogota colombia this report which examines the location behaviour of manufacturing firms in urban areas is part of a world bank urban study project a theoretical model of employment location is formulated and extended to an empirical specification in the multinomial logit framework a bid rent function is derived from the profit function and captures the firms locational equilibrium situations survey data from bogota colombia provides information on i attributes of the establishment such as plant space and ii attributes of the plant site such as access to markets the estimated model is capable of predicting the location choices of different types of firms separate regression results using the same data set indicate a strong relationship between the intensity of input use and land price supporting the hypothesis that the firms respond to the substitutability of land with respect to other inputs over space the patterns of employment location in bogota are by no means random they are quite similar to those observed for large cities in the united states

money and credit as means of payment a new monetarist approach abstract we study the choice of payment instruments in a model with money and credit where sellers must invest in a record keeping technology to accept credit and buyers have limited commitment our model captures the two sided market interaction between consumers and retailers that can generate multiple equilibria limited commitment yields an endogenous debt limit that depends on monetary policy money and credit coexist for a range of parameters and bargaining related hold up problems can lead to inefficiencies in the adoption of monitoring technologies changes in monetary policy generate multiplier effects in the credit market due to complementarities between consumer borrowing and the adoption of credit by merchants

a walrasian theory of money and barter we study a barter economy in which each good is produced in two qualities and no trader can distinguish between the qualities of those goods he neither consumes nor produces we show that in competitive equilibrium there exists a unique good the one for which the discrepancy between qualities is smallest that serves as the medium of exchange this good mediates every trade equilibrium is inefficient because production of the medium would be lower if it were not for its mediating role introducing fiat money enhances welfare by eliminating this distortion however high inflation drives traders back to the commodity medium

accounting for central neighborhood change 1980 2010 abstract after 1980 2000 population decline and economic stagnation downtown neighborhoods in most large us cities experienced 2000 2010 population growth and gentrification stark racial differences in valuations of downtown amenities and suburban labor market opportunities among those with less than college that only emerged after 2000 are the primary drivers of these downtown neighborhood dynamics as college educated whites moved in increases in valuations of downtown amenities encouraged other whites to remain in downtowns a reversal from prior decades continued departures of less than college educated minorities were driven both by relative improvements in suburban employment opportunities for this group and their continued declines in valuations of downtown amenities our evidence highlights the importance of racial differences in valuations of potentially endogenous local amenities for understanding recent downtown gentrification

hedonic theory bid rents and willingness to pay some extensions of ellickson s results abstract an alternative to ellickson s multinomial logit model of household bids for dwelling units is derived by making use of observable information on the price paid by the winning bidder the alternative specification makes it possible to estimate willingness to pay for housing attributes which cannot be obtained from ellickson s model some methodological issues arising from ellickson s method of grouping households are also examined

bidding models of housing markets abstract the bid rent model which is the standard bidding model of housing markets fails to take account of three important characteristics of the bidding process that operates in these markets the prices of houses are established through sequential bidding so that sellers do not necessarily accept the highest bids that might be made for their houses ignorance of the market may lead potential buyers to make bids that are either higher or lower than the ones they would make if they had complete information and the distribution of bids for a house is truncated at the seller s asking price this paper describes a bidding model that incorporates these characteristics of housing markets the new model and the standard model are estimated econometrically and tested against one another using data from the baltimore maryland area the test results indicate strong rejection of the standard model it is concluded that the new model provides a better description of the operation of housing markets than does the standard model

divergence in alternative hicksian welfare measures the case of revealed preference for public amenities this paper investigates the divergence between the two hicksian welfare measures of non traded amenity improvement associated with housing first the hicksian surplus measures for amenity changes are analytically developed based on explicit specification of utility structures a hedonic two stage approach is then applied to empirically show that for quantity changes in contrast to hypothetical markets divergence in real market is small the paper also analytically develops expressions for the income and substitution effects and empirically shows that for a given income effect the greater the substitution effect the smaller the divergence between the two measures copyright 2002 john wiley sons ltd

estimation of the bid rent function with the usage decision model abstract this paper examines whether the bid rent function model is a valid description of a mechanism of the urban land market we estimate the function that decides land usage and price using the full information maximum likelihood fiml it finds that land usage on average follows the rule that is consistent with the bid rent function model whichever usage outbids the others occupies the land however the evidence also suggests that there is a systematic departure from the model namely the distance from the second city center may directly affect land usage even though it is not reflected in land prices

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

a tractable monetary model under general preferences this article studies an economy with both centralized and decentralized monetary exchanges under search frictions a degenerate asset distribution is featured under a broad class of preferences including for example constant return to scale constant elasticity of substitution cara and others from a range of macroeconomic literatures some novel applications impossible under quasi linear preferences for example endogenous growth are illustrated under this class of preferences this article finds that the welfare cost and growth loss of inflation can be much higher in these applications than previous estimates

modelling the choice of tenure and building type a multinomial logistic mnl model and a naive nested logistic model are estimated to relate differences in household size age income and housing prices to differences in the choice of tenure and building type the estimated models show that the demand for lower density options decreases with a reduction in household size and increases with increasing age and real income higher rents increase the demand for owner occupied single family detached houses higher price levels for the ownership option shift demand toward all of the higher density options particularly toward high rise rental apartments the key assumption underlying the mnl model is examined and shown to not hold true however the differences in the predictions made by the two models are too small to matter in the study of the choices among the major building types issues regarding the choice of models are discussed in the conclusions

banking crises and liquidity in a monetary economy abstract this study investigates banks liquidity provision using the lagos and wright model of monetary exchange with aggregate uncertainty we show that banks sometimes exhaust their cash reserves and fail to satisfy their depositors needs for consumption smoothing we also show that banking crises can be eliminated by a rate of return equalizing policy under perfect risk sharing but the first best outcome can be only achieved with the friedman rule these results cannot be obtained with other monetary models e g overlapping generations models we also derive a rich array of non trivial effects of inflation on equilibrium deposits the probability of banking crises and banks portfolios

money unit of account and nominal rigidity abstract in order to characterize the properties required to fulfill the roles of money as a unit of account uoa as well as a medium of exchange moe we consider the choice of a uoa in the context of a micro founded model where inflation uncertainty exists and some conversion cost is incurred in using a uoa that is different from an moe we show that it is not the level of inflation but its volatility that matters for the choice of a uoa in the presence of inflation uncertainty money can still become both an moe and a uoa as long as the conversion cost is higher than its maximum buyers are willing to bear for ensuring stable consumption against inflation uncertainty also the choice of a uoa in the presence of fiat money as an moe determines endogenously the nominal price rigidity or flexibility an economy adopting money as a uoa yields the short run nominal rigidity and the phillips curve relationship

on the coexistence of money and higher return assets and its social role this paper adopts mechanism design to investigate the coexistence of at money and higherreturn assets we consider an economy with pairwise meetings where at money and riskfree capital compete as means of payment as in lagos and rocheteau 2008 the trading mechanism in pairwise meetings is chosen among all individually rational renegotiation proof mechanisms to maximize society s welfare we show that in any stationary monetary equilibrium capital commands a higher rate of return than at money

the contribution of environmental amenities to low income housing a comparative study of bangkok and jakarta central and local governments and their creditors are increasingly interested in cost recovery for public services these strategies have two aims increasing revenues and making a better connection between benefits received and consumer bills this paper estimates a hedonic model for household level data in a rare contrast of slums in two asian mega cities to provide comparative information about how the poor value environmental amenities and basic infrastructure access the results suggest that slum housing prices do reflect differentials in public service access and that rough estimates of the value of access can be cheaply and usefully obtained for planning purposes

money and collateral this paper presents a model in which money and collateral are both essential and complement each other as media of exchange the model has implications for asset prices output in ation and monetary policy both in steady state and

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

money and asset prices with uninsurable risks abstract we present a theory of differences of liquidity across assets based on an endogenous ranking of assets as media of exchange arising from their relative quality as hedging devices when assets have two distinct roles as intertemporal media of exchange and hedging devices buyers have generically a strict preference for paying sellers with the asset which is the relative better hedging device for sellers the consequence of this preference is that there are three monetary policy regimes and these regimes differ in which assets serve as media of exchange whether assets carry a liquidity premium and in the impact that monetary policy has on asset prices

money and credit redux do we need both money and credit in models with explicit roles for payment instruments we show the answer is no if credit is easy money is useless if credit is tight money can be essential but then credit is irrelevant and changes in debt limits are neutral real balances respond endogenously to leave total liquidity constant this is true for exogenous or endogenous policy and debt limits secured or unsecured credit and fairly general preferences and pricing mechanisms while we also show how to overturn some results the benchmark model suggests credit conditions matter less than some people think

payments and liquidity under adverse selection informational asymmetries regarding the future value of assets affect their role in exchange i construct a random matching economy composed of two assets a risk free bond and a lucas tree whose terminal value is privately known to its holder no restrictions are imposed on payment arrangements the main finding supports a pecking order theory of payments agents use their risk free bonds first in order to finance their spending shocks and they use their information sensitive assets only if their holdings of bonds are depleted the theory has implications for the optimal provision of risk free bonds the structure of asset returns and liquidity

holdups and overinvestment in capital markets abstract this paper considers a decentralized capital market characterized by trading frictions in which firms and suppliers need to make investment decisions before meeting with each other and bargaining over the price of capital the resulting holdup problem provides firms with a strategic incentive to overaccumulate capital so as to reduce their marginal productivity and thus the bargained price in equilibrium this strategic incentive can outweigh the usual distortionary effects of holdup problems that on their own would lead to underinvestment thus resulting in the economy to overinvest in a setting with both capital and labor the holdup problem in capital markets interacts with holdup problems in labor markets this presents firms with a trade off that has non trivial equilibrium effects and that depending on the substitutability of capital and labor and the firm s bargaining power in each market can mitigate or exacerbate the overinvestment result

an alternative test of the hedonic theory of housing markets abstract in this paper the hedonic theory of housing markets is used to generate a multinomial logit model of household behavior in an urban housing market application of hedonic theory to housing markets is by now fairly familiar and a link to multinomial logit has also been established however by emphasizing more heavily the bid price interpretation of hedonic theory this paper develops a new connection to econometric estimation that essentially involves running the usual logit equations in reverse one advantage of this approach is that the link between the logit equations and hedonic theory involves bid price rather than utility functions and this in turn permits the empirical results to be given an extremely clear interpretation furthermore in contrast to the standard logit model the extreme value distribution required to justify the estimation technique emerges endogenously as part of the analysis

money and capital as competing media of exchange we construct a model where capital competes with fiat money as a medium of exchange and we establish conditions on fundamentals under which fiat money can be both valued and socially beneficial when the socially efficient stock of capital is too low to provide the liquidity agents need they overaccumulate productive assets to use as media of exchange when this is the case there exists a monetary equilibrium that dominates the nonmonetary one in terms of welfare under the friedman rule fiat money provides just enough liquidity so that agents choose to accumulate the same capital stock a social planner would

the impact of site characteristics on housing cost estimates abstract hedonic housing regressions using micro data for owners and renters from the 1972 1973 consumer expenditure survey are presented by including tract characteristics and public goods in these regressions evidence is presented which indicates sensitivity of the physical housing variable coefficients to the choice of included site related characteristics furthermore omission of public good variables can result in misleading and possibly perverse coefficients on access intermetropolitan housing cost estimates however are shown to be relatively insensitive to the choice of site related characteristics

a limiting joint choice model for discrete and continuous housing characteristics a simultaneous discrete and continuous random utility model for housing demand is presented household utility depends on three characteristics of hou sing a discrete number of bedrooms and continuous measures of hous i ng quality and distance to the central business district empirical r esults for a sample of renter households from san francisco are compa red for a univariate structure in which each choice variable has its own utility or disutility function a simultaneous structure assuming a discrete continuous analog of the independence of irrelevant alter natives and one for which this assumption is relaxed the results in dicate that the third structure is most appropriate copyright 1988 by mit press

private money creation liquidity crises and government interventions abstract the joint supply of public and private liquidity is examined when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises government interventions in the form of asset purchases and deposit insurance are equivalent in the sense that they sustain the same equilibrium allocations increase welfare and if fiscal capacity is sufficiently large eliminate liquidity crises in contrast restricting intermediaries to investing in low risk projects always eliminates liquidity crises but reduces welfare under some conditions deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt i e traditional banks coexist with others that issue uninsured debt i e shadow banks despite the two being ex ante identical

a model of money and credit with application to the credit card debt puzzle many individuals simultaneously have significant credit card debt and money in the bank the credit card debt puzzle is given high interest rates on credit cards and low rates on bank accounts why not pay down the debt while economists have gone to elaborate lengths to explain this observation we argue it is a special case of the rate of return dominance puzzle from monetary economics we analyze the issue by extending standard monetary theory to incorporate consumer debt this seems interesting in its own right since developing models where money and credit coexist is a long standing challenge and it helps put into context recent discussions of consumer debt

combining revealed and stated data to examine housing decisions using discrete choice analysis abstract this paper uses stated preference and revealed preference data separately and jointly to examine individuals housing choices in particular it combines an established revealed preference approach discrete choice analysis of actual housing purchases and a relatively new stated preference approach choice based conjoint analysis of hypothetical housing purchases to provide us with a better understanding of the factors driving housing decisions these methods are appropriately combined since they reflect the same decision process households select the dwelling that provides the best combination of attributes from the feasible set of alternatives in total this paper analyzes three data sets only actual housing purchases only hypothetical housing purchases and both types of purchases combined analysis finds that actual and hypothetical housing purchases are similar decision processes with respect to some attributes yet are dissimilar with respect to other attributes nevertheless combining the two types of data improves identification of both categories of attributes journal of economic literature classification number r21

a model of commodity money abstract commodity money is modeled as one or two of the capital goods in a one consumption good and one or two capital good overlapping generations model among the topics addressed using versions of the model are i the nature of the inefficiency of commodity money ii the validity of quantity theory predictions for commodity money systems iii the circumstances under which one commodity emerges naturally as the commodity money iv the role of inside money money backed by private debt in commodity money systems and v the circumstances under which a government can choose the commodity to serve as the commodity money

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

financial sophistication and the distribution of the welfare cost of inflation abstract the welfare cost of anticipated inflation is quantified in a calibrated model of the u s economy that exhibits tractable equilibrium dispersion in wealth and earnings inflation does not generate large losses in societal welfare yet its impact varies noticeably across segments of society depending also on the financial sophistication of the economy if money is the only asset then inflation mostly hurts the wealthier and more productive agents while those poorer and less productive may even benefit from inflation the converse holds in a more sophisticated financial environment where agents can insure against consumption risk with assets other than money

asset prices liquidity and monetary policy in an exchange economy i formulate a model in which money coexists with equity shares on a risky aggregate endowment agents can use equity as a means of payment so shocks to equity prices translate into aggregate liquidity shocks that disrupt the mechanism of exchange i characterize a family of optimal monetary policies and find that the resulting equity prices are independent of monetary considerations i also study a perturbation of the family of optimal policies that targets a positive constant nominal interest rate and find that in this case the real equity return includes a liquidity return that depends on monetary considerations

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

some results on the optimality and implementation of the friedman rule in the search theory of money abstract i characterize a large family of monetary policies that implement milton friedman s prescription of zero nominal interest rates in a monetary search economy with multiple assets and aggregate uncertainty this family of optimal policies is defined by two properties i the money supply must be arbitrarily close to zero for an infinite number of dates and ii asymptotically on average over the dates when fiat money plays an essential role the growth rate of the money supply must be at least as large as the rate of time preference

discussion of information and liquidity i discuss the model of asset liquidity by lester postlewaite and wright 2011 this issue forthcoming i consider a model with bilateral matching and bargaining in which a perfectly divisible asset serves as means of payment a recognizability problem is introduced by assuming that the asset can be counterfeited at a positive cost in contrast to lester postlewaite and wright in equilibrium sellers always accept objects that they do not recognize the private information problem manifests itself by smaller quantities traded in uninformed matches

collateral fluctuations in a monetary economy this paper studies economy wide fluctuations that occur endogenously in the presence of monetary and real assets using a standard monetary search model we consider an economy in which agents can increase consumption over and above what their liquid monetary asset holdings would allow pledging real assets as collateral for monetary loans it is shown that if the liquidation value of real assets is below full market value a stable cyclical equilibrium can emerge in consumption and capital around the unstable steady state we also provide conditions for the existence of cycles of higher order chaos and sunspot equilibria

quasi experiments hedonic models and estimating trade offs for local amenities this paper evaluates whether the property value capitalization effects measured with quasi experimental methods offer reliable estimates of willingness to pay for changes in amenities we propose the use of a market simulation as a robustness check two applications establish the method s relevance the first examines the conversion of land cover from desert to wet landscape the second examines cleanup of hazardous waste sites we find that even when quasi experimental methods have access to ideal instruments their performance in measuring general equilibrium willingness to pay cannot be assumed ideal it needs to be evaluated considering the specific features of each application jel q51

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

valuing air quality with hedonic and discrete choice models environmental economists have been using property values in attempts to measure the value residents place on air quality as far back as the 1960s however in the years since then we have learned a great deal about how complex valuing nonmarginal changes in air quality is rosen presented a hedonic model that is still extremely influential today but the estimation strategy he outlined in that paper had some shortcomings many of these identification and endogeneity issues were corrected subsequently in papers such as palmquist 1984 parsons and bartik but none of these papers concentrated on environmental issues a central issue in estimating the demand or marginal willingness to pay functions for characteristics of housing is the identification of those behavioral functions as distinct from

credit markets limited commitment and government debt a dynamic model with credit under limited commitment is constructed in which limited memory can weaken the effects of punishment for default this creates an endogenous role for government debt in credit markets and the economy can be non ricardian default can occur in equilibrium and government debt essentially plays a role as collateral and thus improves borrowers incentives the provision of government debt acts to discourage default whether default occurs in equilibrium or not these are our own views and not necessarily those of the federal reserve banks of richmond and st louis or the board of governors of the federal reserve system we thank seminar and conference participants at the chicago federal reserve bank workshop on money banking and payments the 2012 sed meetings along with 3 anonymous referees and the editor dimitri vayanos for their helpful comments and suggestions

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

bargaining and the value of money abstract search models of monetary exchange have typically relied on nash 1950 the bargaining problem econometrica 18 155 162 bargaining or strategic games that yield an equivalent outcome to determine the terms of trade by considering alternative axiomatic bargaining solutions in a search model with divisible money we show that the properties of the bargaining solutions do matter both qualitatively and quantitatively for questions of first degree importance in monetary economics such as i the efficiency of monetary equilibrium ii the optimality of the friedman rule and iii the welfare cost of inflation

neighbourhood effects and housing demand in this paper we estimate a model of housing demand with neighborhood eects we exploit special features of the national sample of the american housing survey and properties of housing markets that allow us to create natural instruments and therefore identify the impact of social interactions we find evidence of both endogenous and contextual neighborhood eects we report two alternative sets of estimates for neighborhood eects that dier in terms of the instruments we use for estimating the model when the endogenous neighborhood eect is large the respective contextual eects are weak and vice versa the elasticity of housing demand with respect to the mean of the neighbors housing demands the endogenous eect ranges from 0 19 to 0 66 and is generally very significant the contextual eects are also very significant a key such eect the elasticity with respect to the mean of neighbors permanent incomes ranges from 0 17 to 0 54

multiple regime bid rent function estimation abstract this paper reviews estimators for multiple regime selection models which include the standard urban bid rent model as a special case 4 probabilistic bid rent model imposes a restrictive selection process while existing two stage multiple regime estimators assume an error structure that is inconsistent with bid rent theory monte carlo experiments demonstrate that two stage estimators are accurate and robust to distributional misspecification the practical usefulness of the estimators is illustrated using data on 1920s chicago land values

the determinants of nonresidential urban land values abstract this paper presents the results of an empirical study of nonresidential urban land values in the dallas metropolitan area the data base consists of 467 vacant land transactions from 1978 to 1982 by concentrating on sales prices of vacant land rather than improved property problems normally encountered from use of appraised values or improved properties are eliminated separate models are developed for industrial commercial and office land the study focuses on the tendency toward agglomeration for consumers of each land use as measured by the impact on land values in the central business district suburban nodes and other employment concentrations the results provide insight into a number of influences on urban land value and offer evidence that office land derives greater benefit from agglomeration than does commercial or industrial land

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

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

is land leasing a solution to unaffordable housing the increase in u s mortgage rates from nine per cent in 1976 to fifteen per cent in 1982 raised monthly mortgage payments by about sixty per cent even before rising house prices in the united states over this period are taken into account not surprisingly attention has been focused on ways and means of counteracting spiralling housing costs one proposed solution is land leasing under such an arrangement the homebuyer purchases the house but leases the land there may be an option to buy the land at some time in the future land leasing reduces the overall purchase price and hence lowers the minimum down payment and the initial monthly mortgage payment in hawaii land leasing has been a readily available alternative to land owning throughout the postwar period the analysis of residential housing prices in hawaii provides some quantitative estimates of the relative prices of leasehold versus fee simple properties the average price differential is surprisingly small one explanation of these small price differentials for which a model is developed and tested here is that borrowing constrained households use high discount rates to calculate the present value of the future land price that they will in effect have to pay at the expiration of the lease these discount rates are estimated in a nonlinear hedonic property price equation the results are then employed to answer the question under what conditions would a leaseholder buy the land outright before the expiration of the lease

capitalization population movement and the local public sector a probabilistic analysis abstract a probabilistic model is used to relate population movement to the capitalization of the local public sector into the price of housing this explanation is used to analyze the predicted effects of differing public policies on the composition of san francisco s population the model is also used to test the relative merits of the two explanations of the flight of higher income households from the central city the accessibility and flight from blight models the findings suggest that neither model can completely explain this flight exclusive of the other

dollar illiquidity and central bank swap arrangements during the global financial crisis abstract while the global financial crisis was centered in the united states it led to a surprising appreciation in the dollar suggesting global dollar illiquidity in response the federal reserve partnered with other central banks to inject dollars into the international financial system empirical studies of the success of these efforts have yielded mixed results in part because their timing is likely to be endogenous in this paper we examine the cross sectional impact of these interventions theory consistent with dollar appreciation in the crisis suggests that their impact should be greater for countries that have greater exposure to the united states through trade and financial channels less transparent holdings of dollar assets and greater illiquidity difficulties we examine these predictions for observed cross sectional changes in cds spreads using a new proxy for innovations in perceived changes in sovereign risk based upon google search data we find robust evidence that auctions of dollar assets by foreign central banks disproportionately benefited countries that were more exposed to the united states through either trade linkages or asset exposure we obtain weaker results for differences in asset transparency or illiquidity however several of the important announcements concerning the international swap programs disproportionately benefited countries exhibiting greater asset opaqueness

an empirical investigation into the performance of ellickson s random bidding model with an application to air quality valuation abstract this paper compares ellickson s random bidding model to the standard hedonic model in estimating benefits due to marginal and non marginal changes in housing attributes using data on the chicago housing market the paper shows that the benefit estimates obtained using the two models are very close in addition various categorizations based on household characteristics are tested in the case of the random bidding model the study shows that the effect of categorization on the overall benefit estimates are negligible moreover the results from the random bidding model reveal that increased income leads to greater demand for environmental quality

land use worker heterogeneity and welfare benefits of public goods we show that investments in public goods change the optimal land use in their vicinity leading to additional welfare benefits this occurs through two sorting mechanisms first availability of public goods leads to higher population densities second population groups sort according to their preferences for public goods we develop a structural spatial general equilibrium model that accounts for these effects the model is estimated using data on transport infrastructure commuting behaviour land use and land rents for some 3000 zip codes in the netherlands and for three levels of education welfare benefits of investments in public transport infrastructure are shown to differ sharply by workers educational attainment welfare gains from changes in land use account for up to 30 of the total benefits of a transport investment

discrete choice models and the housing price and travel to work elasticities of location demand abstract multinomial logit and nested logit models of mode choice in travel to work and housing location choice are estimated from 1970 u s census data aggregated to small zones of the chicago smsa the estimated models are then used to derive the housing rent travel time and travel cost elasticities of location demand the effects of sampling variation sample size attribute inclusion model specification and estimation method on the estimated elasticities are evaluated and found to be important the elasticities are also compared and found to agree with those obtained from other discrete choice models and in the case of housing rent with estimates obtained from models based on other theoretical structure

a tractable model of indirect asset liquidity abstract assets have indirect liquidity if they cannot be used as media of exchange but can be traded to obtain a medium of exchange money and thereby inherit monetary properties this essay describes a simple dynamic model of indirect asset liquidity provides closed form solutions for real and nominal assets and discusses properties of the solutions some of these are standard assets and money are imperfect substitutes asset demand curves slope down and money is not always neutral other properties are more surprising prices are flexible but appear sticky and an increase in the supply of indirectly liquid assets can decrease welfare because of its simplicity the model can be useful as a building block inside a larger model and for teaching concepts from monetary theory

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

money search and business cycles monetary models that specify explicit frictions to generate money demand have been developed over the last 20 years and have been used to address many questions in this article i investigate the short run properties of a particular model considering a number of versions based on some modeling choices all versions feature flexible prices i find that in many aspects both real and nominal the model resembles other more reduced form models some variations of the model come closer to matching some key nominal facts than a reduced form model the model also generates counter cyclical markups in line with the data

pairwise trade asset prices and monetary policy abstract we construct a search theoretic model where fiat money coexists with real assets and all assets can be used as a media of exchange the terms of trade in bilateral matches are determined by a pairwise pareto efficient pricing mechanism we do not have to appeal to exogenous liquidity constraints to generate asset prices that are consistent with the following facts i fiat money can be valued despite being dominated in its rate of return ii real assets with identical dividend flows can have different rates of return and iii an increase in inflation raises asset prices lowers their returns and widens the rate of return differences between assets on the normative side we show that there is a range of inflation rates that implement the first best allocation

the role of search frictions in the long run relationships between inflation unemployment and capital abstract this paper explores the long run relationships between inflation unemployment and capital accumulation by proposing a model with search frictions in both goods and labor markets this framework allows us to identify a negative extensive margin effect of inflation on the number of firms demanding capital and a positive intensive margin effect of inflation on the capital demanded per firm the two effects together generate a hump shaped relationship between long run inflation and aggregate capital these results are consistent with our empirical evidence from a cross section of 76 countries which suggests a non monotonic relationship between inflation and investment to gdp ratio in the long run our calibrated results are also consistent with empirical findings from the u s data on the effect of inflation on capital stock unemployment and the real interest rates

search money and capital a neoclassical dichotomy recent work has reduced the gap between search based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential this paper takes a further step toward this integration by introducing labor capital and neoclassical firms the resulting framework nests a search theoretic monetary model and a standard neoclassical growth model as special cases perhaps surprisingly it also exhibits a dichotomy one can determine the equilibrium path for the value of money independent of the paths of consumption investment and employment in the centralized market

the streetcar and residential location in nineteenth century philadelphia the alonso muth model predicts how a worker s income affects his residential location within an urban area workers choose a residential location balancing the lower rent at locations distant from the city center against the higher commuting cost that such locations entail if the income elasticity of housing demand is greater than that of marginal commuting cost the bid rent function of a high wage worker is flatter than that of a low wage worker and thus the high wage worker lives farther from the city center this theory which was first articulated in the 1960s was consistent with empirical evidence from that period the model did not fare so well in the 1970s and 198os however on one hand were new studies of housing demand polinsky and ellwood 20 pointed out biases in earlier studies and found income elasticities less than unity when these biases were corrected these results indicate that the income elasticity of housing demand is less than that of marginal commuting cost since the latter is typically close to unity which in turn implies that the bid rent function of a high wage worker is steeper than that of a low wage worker wheaton 25 provided more direct evidence on this point he estimated bid rent functions of different income groups and found no significant difference between those of higher and lower income households these studies suggested that the alonso muth model could not explain the residential pattern observed in the 1950s and 1960s on the other hand was the change in that pattern in the 197os upper income households began to return to the cities the so called

annual bonuses employment and productivity change in taiwan s manufacturing sector abstract taiwanese manufacturing firms have traditionally made annual bonus payments to employees concentrated around the lunar new year holiday this paper uses industry data to investigate the connection between compensation volatility and the volatility and growth rate of employment we observe a significant relationship between employment and seasonally predictable compensation volatility implying that industries in which firms commit themselves to paying regular new year bonuses employ more workers more stably we also investigate the relationship between compensation profits and productivity growth we find a significant role for productivity growth in the determination of profits and for profits in the determination of bonuses however it appears that productivity growth itself is mainly determined by exogenous factors and is only slightly responsive to the bonus system

joint choice of tenure and dwelling type a multinomial logit analysis for the city of chongju this paper explores the plausible variables that influence choices in the chongju housing market a joint model of tenure and dwelling type is estimated within the multinomial logit framework the