monetary policy asset prices and liquidity in over the counter markets we develop a model where agents can allocate their wealth between a liquid asset which can be used to purchase consumption goods and an illiquid asset which represents a better store of value should a consumption opportunity arise agents may visit a frictional over the counter secondary asset market where they can exchange illiquid for liquid assets we characterize how monetary policy affects both the issue price and the secondary market price of the asset we also show that in contrast to conventional wisdom search and bargaining frictions in the secondary asset market can improve welfare if inflation is low

price coherence and excessive intermediation suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary s technology we develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates with this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary we show that this leads to inflated retail prices excessive adoption of the intermediaries services over investment in benefits to buyers and a reduction in consumer surplus and sometimes welfare competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise we discuss applications to payment card systems travel reservation systems rebate services and various other intermediaries jel codes d40 l11 l14 l42

optimal card payment systems abstract this paper presents a model of a card payment system to address the pricing and rules that govern such systems it evaluates the social optimality of privately set interchange fees and the adoption of a rule by payment systems to prevent merchants surcharging for card transactions using two extremes of merchant pricing monopolistic pricing and perfect competition both types of merchant pricing constrain the ability of card schemes to use interchange fees and the no surcharge rule in anticompetitive ways although for quite different reasons the positive role of the no surcharge rule in preventing excessive merchant surcharging is also highlighted

coalition proof trade and the friedman rule in the lagos wright model the lagos wright model a monetary model in which pairwise meetings alternate in time with a centralized meeting has been extensively analyzed but always using particular trading protocols here trading protocols are replaced by two alternative notions of implementability one that allows only individual defections and one that also allows cooperative defections in meetings it is shown that the first best allocation is implementable under the stricter notion without taxation if people are sufficiently patient and if people are free to skip the centralized meeting then lump sum taxation used to pay interest on money does not enlarge the set of implementable allocations

money credit and banking in monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained this problem creates a role for financial intermediaries such as banks who accept nominal deposits and make nominal loans in general financial intermediation improves the allocation the gains in welfare come from the payment of interest on deposits and not from relaxing borrowers liquidity constraints we also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

optimality of the disclosure of private information in a production exchange economy this study provides an analysis of the effects on individual welfare of information revelation in a production exchange economy it is shown that the total effect of information revelation on an agent s utility level may be decomposed into three elements a price effect a shareholding effect and a production effect through this decomposition it is demonstrated that although a pareto improvement need not result from information revelation there are perspectives from which the release can be considered beneficial the major conclusion of previous studies of information revelation in a heterogeneous beliefs economy is that the release will not result in general in an economic equilibrium pareto superior to that which would have existed without the disclosure this result by itself does not give an understanding of how information revelation affects agents utility nor does it give much guidance to those regulatory bodies charged with deciding whether or not to mandate information disclosure this study provides further insight into the effects on individual welfare of information revelation in a general production exchange economy it is shown that the total effect of information revelation on an agent s utility level may be decomposed into three elements a price effect a shareholding effect and a production effect the price effect is the change in the agent s utility caused by the change in prices resulting from the revelation of information keeping shareholdings and production fixed the shareholding effect is the change in his utility resulting from the change in his shareholdings caused by the release of information the production effect is the change in his utility caused by the change in the production plan of each firm due to the information revelation conditions are given under which the signs of these three effects will be positive or negative for a given agent the finding that the production effect is positive for some agents and negative for others is of particular interest since it is counter to a result of arrow and hirshleifer they have argued that owners of production processes gain utility by having information revealed before production plans are fixed because they are then able to adjust those plans to account for the additional information it is shown here that such a conclusion can only be made in general when owners of each production process have homogeneous beliefs finally it is

sufficient conditions for public information to have social value in a production and exchange economy conditions are derived under which all consumers in a production and exchange economy will prefer at least weakly disclosure of public information to no such disclosure the conditions involve consumer endowments the allocative efficiency of the financial market and value maximizing behavior by firms cases exist where consumers will prefer disclosure of public information in a production and exchange economy although they would be indifferent to such disclosure in an otherwise similar pure exchange economy the difference in results is due purely to the fact that in production and exchange economies information may be used to reallocate resources across time and firms thus highlighting the fundamental difference between the role of information in pure exchange and in production and exchange economies

incentive feasible deflation abstract for competitive economies in which the real rate of return on money is too low the standard prescription is to engineer a deflation that is to operate monetary policy according to the friedman rule implicit in this recommendation is the availability of a lump sum tax instrument in this paper i view lump sum tax obligations as a form of debt subject to default while individuals may want to honor such obligations ex ante a lack of commitment the sine qua non of modern monetary theory may prevent them from the following through on their promises ex post when this is the case there may exist an incentive induced limit to deflationary policy

efficient monetary allocations and the illiquidity of bonds abstract we construct a monetary economy with heterogeneity in discounting and consumption risk agents can insure against this risk with money and nominal government bonds but all trades must be monetary we demonstrate that a deflationary policy a la friedman cannot sustain the constrained efficient allocation as no arbitrage imposes too stringent a bound on the return money can pay the constrained efficient allocation can be sustained when bonds have positive yields and under certain conditions only if they are illiquid illiquidity meaning that bonds cannot be transformed into consumption as easily as cash is necessary to eliminate arbitrage opportunities due to disparities in shadow interest rates

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

two sided market r d and payments system evolution abstract it takes many years for more efficient electronic payments to be widely used and the fees that merchants consumers pay for using those services are increasing decreasing over time we address these puzzles by studying payments system evolution with a dynamic model in a two sided market setting we calibrate the model to u s payment card data and conduct welfare and policy analysis our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes and the welfare impact of regulations may vary significantly through the endogenous r d channel

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

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

efficiency improvement from restricting the liquidity of nominal bonds abstract in a monetary search model with nominal bonds agents face matching taste shocks but they cannot insure borrow or trade against such shocks a government imposes a legal restriction that prohibits bonds from being used to buy a subset of goods i show that this legal restriction can increase the society s welfare in contrast to the literature this efficiency role persists in the steady state and even when the households cannot trade assets after receiving the shocks moreover it can exist when the friedman rule is available and when the restriction is only obeyed by government agents

asset prices and liquidity in an exchange economy i develop an asset pricing model in which financial assets are valued for their liquidity the extent to which they are useful in facilitating exchange as well as for being claims to streams of consumption goods the implications for average asset returns the equity premium puzzle and the risk free rate puzzle are explored in a version of the model that nests the work of mehra and prescott 1985

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

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

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

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

degreasing the wheels of finance can there be too much trading in financial markets we construct a dynamic general equilibrium model where agents face idiosyncratic liquidity shocks a financial market allows agents to adjust their portfolio of liquid and illiquid assets in response to these shocks the optimal policy is to restrict access to this market because portfolio choices exhibit a pecuniary externality agents do not take into account that by holding more of the liquid asset they not only acquire additional insurance against these liquidity shocks but also marginally increase the value of the liquid asset which improves insurance for other market participants

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

price cap regulation in a two sided market intended and unintended consequences abstract this paper studies intended and unintended consequences of price cap regulation in the two sided payment card market the recent u s debit card regulation was intended to lower merchants card acceptance costs by capping interchange fees at the issuer cost but for small ticket transactions the interchange fee instead rose post regulation to address the puzzle i construct a two sided market model and show that card demand externalities between large ticket and small ticket transactions rationalize card networks pricing response based on the model i provide a welfare assessment of the issuer cost based interchange regulation and discuss alternative regulatory approaches

liquidity and asset prices a new monetarist approach abstract when lenders cannot force borrowers to repay debts assets are often pledged to secure loans in this paper borrowers lose collateral once they renege on debts and exclusion of defaulters occurs probabilistically with a higher probability implying better enforcement increased efficiency in enforcement reduces asset prices while raising loan to value ratios if the rise in loan to value ratios is the dominant effect aggregate liquidity and output increase with the advance in enforcement inflation raises the repayment cost by increasing the loan rate while raising the default cost through exclusion consequently inflation raises loan to value ratios and output only when enforcement is sufficiently efficient

credit crises precautionary savings and the liquidity trap we use a model a la bewly huggett ayagari to explore the eects of a credit crunch on consumer spending households borrow and lend to smooth idiosyncratic income shocks facing an exogenous borrowing constraint we look at the economy response after an unexpected permananent tightening of this constraint the interest rate drops sharply in the short run and then adjusts to a lower steady state level this is due to the fact that after the shock a large fraction of agents is far below their target holdings of precautionary savings and this generates a large temporary positive shock to net lending we then look at the eects on output here two opposing forces are present as households can deleverage in two ways by consuming less and by working more we show that under a reasonable parametrization the eect on consumer spending dominates and precautionary behavior generates a recession if we add nominal rigidities two things happen i supply side responses are muted and ii there is a lower bound on the interest rate adjustment these two elements tend to amplify the recession caused by the credit tightening

cooperation among competitors some economics of payment card associations we analyze platforms in two sided markets with network externalities using the specific context of a payment card association we study the cooperative determination of the interchange fee by member banks the interchange fee is the access charge paid by the merchants banks the acquirers to cardholders banks the issuers we develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card after drawing the welfare implications of a cooperative determination of the interchange fee we describe in detail the factors affecting merchant resistance compare cooperative and for profit business models and make a first cut in the analysis of system competition

systemic illiquidity in the federal funds market this paper shows how the intra day allocation and pricing of overnight loans of federal funds reflect the decentralized inter bank market in which these loans are traded a wouldbe borrower or lender typically finds a counterparty institution by direct bilateral contact once in contact say by telephone the two counterparties to a potential trade negotiate terms that reflect their incentives for borrowing or lending as well as the attractiveness of their respective options to forego a trade and to continue shopping around this overthe counter otc pricing and allocation mechanism is quite distinct from that of most centralized markets such as an electronic limit order book market in which every order is anonymously exposed to every other order with a centralized order crossing algorithm while there is a significant body of research on the micro structure of specialist and limit order book markets most otc markets do not have comprehensive transactionslevel data available for analysis the federal funds market is a rare exception we go beyond a previous study by craig furfine 1999 of the microstructure of the federal funds market by modeling how the likelihood of matching a particular borrower with banking studies federal reserve bank of new york 33 liberty street new york ny 10045 we are grateful for support and data from the federal reserve bank of new york and for comments from guillaume plantin jamie mcandrews craig furfine michael fleming and anonymous federal funds traders we have also benefited from comments by andrew metrick jeremy stein ken french larry harris owen lamont john taylor and randy westerfield the views expressed here are not necessarily those of the federal reserve bank of new york or the federal reserve system

limited commitment and the legal restrictions theory of the demand for money this paper addresses the rate of return puzzle of monetary theory similarly to the legal restrictions theory of the demand for money we assume that government bonds are subject to a minimum purchase requirement differently from this theory however we assume that intermediaries when issuing private notes cannot commit to always redeem them first we study an environment with legal restrictions to intermediation and show that cash and interest bearing bonds both circulate in the economy then we drop the legal restrictions and show that also with active intermediation under limited commitment there is an equilibrium with rate of return dominance a positive interest rate provides the intermediaries with the incentive to issue and redeem their notes

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

missed sales and the pricing of ancillary goods firms often sell a basic good as well as ancillary ones hold up concerns have led to ancillary good regulations such as transparency and price caps the hold up narrative however runs counter to evidence in many retail settings where ancillary good prices are set below cost e g free shipping or limited card surcharging in countries where the no surcharge rule was lifted we argue that the key to unifying these conflicting narratives is that the seller may absorb partly or fully the ancillary good s cost so as not to miss sales on the basic good a supplier with market power on the ancillary good market then takes advantage of cost absorption and jacks up its wholesale price hold ups occur only when consumers are initially uninformed or naive about the drip price and shopping costs are high the price of the basic good then acts as a signal of the drip price since a high markup on the basic good makes the firm more wary of missed sales regardless of whether consumers are informed uninformed but rational or naive mandating price transparency and banning loss making on the ancillary good leads to i an efficient consumption of the ancillary good and ii a reduction of its wholesale price generating strict welfare gains

portfolio choice and pricing in illiquid markets abstract this paper studies portfolio choice and pricing in markets in which immediate trading may be impossible it departs from the literature by removing restrictions on asset holdings and finds that optimal positions depend significantly and naturally on liquidity when expected future liquidity is high agents take more extreme positions given that they do not have to hold those positions for long when they become undesirable consequently larger trades should be observed in markets with more frequent trading liquidity need not affect the price significantly however because liquidity has offsetting impacts on different agents demands this result highlights the importance of unrestricted portfolio choice the paper draws parallels with the transaction cost literature and clarifies the relationship between the price level and the realized trading frequency in this literature

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

a model of the threat of counterfeiting abstract a simple matching model of money with the potential for counterfeiting is constructed in contrast to the existing literature lotteries are included these provide scope for the operation of the intuitive criterion of cho and kreps the application of that refinement is shown to imply that there is no equilibrium with counterfeiting if the cost of producing counterfeits is low enough then there is no monetary equilibrium otherwise there is a monetary equilibrium without counterfeiting in other words the threat of counterfeiting can eliminate the monetary equilibrium

sufficient and necessary conditions for information to have social value in pure exchange this paper extends corrects and unifies earlier statements concerning the social value of public information as well as the no trading conditions in pure exchange sufficient and necessary conditions are provided for both the single period and two period cases in a postsignal trading model the social value of information is shown to be closely linked to the allocational efficiency of the market the degree of homogeneity of prior beliefs and of information structures the time additivity of preferences and the efficiency of endowments we conclude that the case in favor of public information is much stronger than previously suggested

a note on the societal benefits of illiquid bonds kocherlakota 2003 provides an example of a monetary economy where efficiency is enhanced with the introduction of a nominally risk free bond that is specifically designed to be illiquid the societal benefit of an illiquid bond in his example however is transitory and he does not characterize an optimal policy i use an analytically tractable framework to characterize an optimal intervention and to show that the purported benefits of an illiquid bond market persist in a steady state kocherlakota 2003 a donne un exemple d une economie monetaire ou l efficacite est accrue par l introduction d une debenture nominalement sans risque destinee specifiquement aetre illiquide l avantage societal d une debenture illiquide dans son exemple est cependant transitoire et l auteur ne definit pas une politique optimale on utilise un cadre de reference analytiquement soluble pour caracteriser une intervention optimale et pour montrer que les avantages attendus d une debenture illiquide persistent en regime permanent

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds it is folklore among monetary theorists that under laissez faire without ad hoc assumptions that favor money over bonds there do not exist equilibria in which government issued fiat money coexists with nominal default free interest bearing government bonds with similar physical characteristics this proposition is the basis for the strongest version of the rate of return dominance puzzle in this paper i show that if as has been the case throughout monetary history the physical object used as fiat money is heterogeneous in an extraneous attribute then there exist equilibria in which money coexists with interest bearing bonds

must take cards merchant discounts and avoided costs antitrust authorities often argue that merchants cannot reasonably turn down payment cards and therefore must accept excessively high merchant discounts the paper attempts to shed light on this must take cards view from two angles first the paper gives some operational content to the notion of must take card through the avoided cost test or tourist test would the merchant want to refuse a card payment when a non repeat customer with enough cash in her pocket is about to pay at the cash register it analyzes its relevance as an indicator of excessive interchange fees second it identifies four key sources of potential social biases in the payment card systems determination of interchange fees internalization by merchants of a fraction of cardholder surplus issuers per transaction markup merchant heterogeneity and extent of cardholder multi homing it compares the industry and social optima both in the short term fixed number of issuers and the long term in which issuer offerings and entry respond to profitability

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

private versus public ownership investment ownership distribution and optimality examined in this paper is the choice between private and public incorporation of an asset for an entrepreneur asset owner who hires a manager with superior information about the asset s return distribution public sale of equity is shown to be the preferred alternative when a capital market issue costs are low or b the asset s idiosyncratic risk is high and the owner is either sufficiently risk averse or sufficiently optimistic about the asset s expected return thus those as sets deemed most valuable by their owners will tend to be publicly incorporated the paper also explores the impact of incorporation mode private versus public and information structure on the firm s investment policy and ownership distribution the determinants of corporate ownership structure have attracted much attention see for example demsetz and lehn 7 the recent spate of leveraged buyouts lbo s and other activities designed to consolidate ownership structure and often to take it out of the public domain have raised questions about the optimality of public ownership of corporations a related issue is the link between real output and the mode of incorporation in firms with a separation of ownership and control do privately incorporated firms have systematically different investment policies from publicly incorporated firms if so aggregate output must be a function of the cross sectional distribution of incorporation modes in the economy there is also considerable interest in the impact of insider information a topic that concerns us in this paper we have two principal objectives the first is to explore the conditions that determine an asset owner s choice of incorporation for the asset that is when would the owner prefer to keep asset ownership private as opposed to having a portion of that ownership publicly traded in particular what is the role of the owner s perception of the value of the asset in this determination are the assets being taken privately more or less valuable than those that are publicly traded insights on this score should help in understanding corporate ownership structure evolution our second objective is to examine the impact of information structure symmetric versus asymmetric information and the firm s incorporation

market failures and public policy industrial organization studies the exercise and control of market power to this purpose it builds models that capture the essence of the situation the predictions of the model can then be tested econometrically and possibly in the lab or the field in the end the reasonableness of and robustness to modeling assumptions and the quality of empirical fit determine how confident economists are in making recommendations to public decision makers for intervention and to companies for the design of their business model industrial organization has a long tradition first theoretical with the work of french engineer economists antoine augustin cournot 1838 and jules dupuit 1844 then policy oriented with the enactment of the sherman act 1890 and subsequent legislation then descriptive with the studies of the harvard school structure conduct performance comforting and refining the antitrust drive and finally skeptical with the chicago school the chicago school correctly pointed out the lack of underlying theoretical doctrine and went on to cast doubt on the whole edifice it however did not develop an alternative antitrust doctrine perhaps because

search based models of money and finance an integrated approach many applications in monetary economics of search and bargaining theory use shi trejos wright hereafter stw many applications in finance use duffie g rleanu pedersen hereafter dgp these models share several features and both concern liquidity yet they also differ in stw agents use assets as payment instruments when trading goods in dgp they pay with goods or transferable utility when trading assets we integrate the two this clarifies connections between the literatures and generates novel insights several new results are provided for the baseline stw and dgp models while the integrated structure generates even more interesting outcomes including endogenous transactions patterns and belief based dynamics

the optimal quantity of money and partially liquid assets abstract in a monetary economy a la williamson 2012 in which a competitive financial sector insures agents facing idiosyncratic liquidity risk on interest bearing assets we introduce a competitive market for liquidity reallocation and study optimal policy we show that at any inflation rate above the friedman rule the market is a welfare improving risk sharing mechanism over williamson s 2012 deposit contract the optimal policy requires real asset scarcity which increases the demand for money and shrinks consumption inequality between asset and money users also we demonstrate that the equilibrium deposit contract with re trading opportunities in the asset market replicates the market allocations

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

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations

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