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

what motivates managers choice of discretionary accruals abstract the papers by subramanyam 1996 and kasanen kinnunen and niskanen kkn 1996 both consider why managers manipulate accounting accruals subramanyam finds that discretionary accruals are associated with several performance measures and concludes that managers accrual choices increase the informativeness of accounting earnings however a strong competing alternative is that the jones model systematically mismeasures discretionary accruals so that they contain a significant non discretionary component unlike many us studies kkn find strong evidence of earnings management in finland where finnish managers set earnings to satisfy the demand for dividends by keiretsu like institutional investors

mark to market accounting for banks and thrifts lessons from the danish experience university of michigan tharvard university we appreciate helpful suggestions received from participants at the stanford summer camp and the price waterhouse symposium workshop participants at the university of chicago cornell university indiana university the ohio state university university of michigan university of pittsburgh university of rochester university of southern california tulane university and university of utah mary barth bill beaver george benston allen berger fisher black paul healy jack hughes robert kaplan richard leftwich jim leisenring niels nielsen finn ostrup bob ruland pete wilson and an anonymous referee we also appreciate the assistance of our contacts in denmark who shared their time and expertise with us so willingly these include mr ole bjarrum and mr lars nielsen of nykredit mr jesper jesperson and mr aksel olsen of kpmg revisionsfirmaet c jespersen mr lars tonnesen and mr birger schmidt of the danish bankers association mr kim hartvig olsen of the danish financial supervisoryauthority mr jorgen kock of den danske bank and professors jens elling merete christiansen finn ostrup and niels nielson of the copenhagen business school we thank professors dwight crane and bob kaplan of the harvard business school and bob swieringa and jim leisenring of the financial accounting standards board for help in conducting this research we are grateful for financial statement data furnished by the danish financial supervisory authority for access to the account database provided by professors elling and christensen of the copenhagen business school and for excellent research assistance by elizabeth andersen christine botosan marlene plumlee and james myers we also appreciate the willingness

choosy search and the mismatch of talents this article proposes a multi sector matching model where workers have symmetric sector specific skills and the search market is segmented by sector workers choose the range of markets they are willing to participate in i identify a composition externality workers do not take into account the impact of their choice on sector specific mean productivity among the pools of job seekers consequently workers prospect too many market segments and there is room for public policy even when the so called hosios condition holds

detecting earnings management a new approach this paper provides a new approach to test for accrual based earnings management our approach exploits the inherent property of accrual accounting that any accrual based earnings management in one period must reverse in another period if the researcher has priors concerning the timing of the reversal incorporating these priors can significantly improve the power and specification of tests for earnings management our results indicate that tests incorporating reversals increase test power by around 40 and provide a robust solution for mitigating model misspecification arising from correlated omitted variables

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

earnings management under price regulation empirical evidence from the spanish electricity industry abstract this paper analyses the effect of price regulation on the accounting policy of spanish electricity companies over the period 1991 2001 as predicted by the political costs hypothesis watts and zimmerman 1986 watts r l zimmerman j l 1986 positive accounting theory prentice hall englewood cliffs nj managers artificially reduce reported earnings when the government establishes tariff increases in this way companies attempt to diminish their political visibility and counteract social outcry arising from the government s decision several abnormal accruals models existent in the literature are used to obtain a proxy for managerial accounting discretion on earnings

money as the mechanism of exchange abstract the existence and use of money remained an embarrassing puzzle for monetary analysis we observe over man s history that social groups without generally accepted media of exchange exhibit poor survival characteristics most social groups do not use assets or commodities at random in the execution of exchanges one observes that a small subset of assets is dominantly used in transactions these transaction dominating assets are usually referred to as money the literature contains many suggestive attempts to explain the emergence and role of money the classic writers made passing references in somewhat pictorial language to the extension markets and increasing labor productivity induced by the use of a general medium of exchange this idea has never been systematically developed however karl brunner 1971

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

patent protection innovation and technology transfer in a schumpeterian economy abstract this paper analyzes the cross country effects of intellectual property rights ipr protection on the relative wage innovation and technology transfer in a north south quality ladder model with innovative northern r d and adaptive southern r d the degree of ipr protection in two countries differs in terms of patent breadth which determines the markups of northern firms and their southern affiliates respectively in this model stronger ipr protection in the south leads to a permanent decrease in the north south wage gap a temporary increase in the northern innovation rate and a permanent increase in technology transfer by contrast stronger ipr protection in the north leads to a permanent increase in the north south wage gap ambiguous effects on the northern innovation rate and a permanent decrease in technology transfer finally we perform a quantitative analysis by calibrating the model to the us china data and the numerical results support these policy implications in addition to a welfare implication such that strengthening patent protection in one country leads to sizable welfare improvements in both countries

equilibrium using credit or money with indivisible goods this note studies the trade of indivisible goods using credit or money in a frictional market we show how indivisibility matters for monetary equilibrium under different assumptions about price determination bargaining generates a price and allocation that are independent of the nominal interest or inflation rate over some range this is not the case with price posting and directed search in either case we provide conditions the nominal rate cannot be too high under which stationary monetary equilibrium exists and we show it is unique or generically unique

search intensity job advertising and efficiency this paper demonstrates that if both firms and workers search the other side of the market for job matches the equilibrium rate of unemployment is likely to be too high both sides ignore a positive externality of their search when they establish a job match they remove from the market a job searcher so they save society his search costs i show that there is no feasible wage rate that can internalize this externality under fairly weak restrictions on the technology of search

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

inflation output and welfare this paper studies the effects of anticipated inflation on aggregate output and welfare within a search theoretic framework we allow money holders to choose the intensities with which they search for trading partners so inflation affects the frequency of trade as well as the quantity of output produced in each trade we consider the standard pricing mechanism for search models i e ex post bargaining as well as a notion of competitive pricing if prices are bargained over the equilibrium is generically inefficient and an increase in inflation reduces buyers search intensities output and welfare if prices are posted and buyers can direct their search search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates the friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates

inflation tax in the lab a theoretical and experimental study of competitive search equilibrium with inflation in this paper we measure the effect of the inflation tax on economic activity and welfare within a controlled setting to do so we develop a model of price posting and monetary exchange with inflation and finite populations the model which provides a game theoretic foundation to rocheteau and wright 2005 s competitive search monetary equilibrium is used to derive theoretical propositions regarding the effects of inflation in this environment which we test with a laboratory experiment that closely implements the theoretical framework we find that the inflation tax is harmful with cash holdings production and welfare all falling as inflation rises and that its effect is relatively larger at low inflation rates than at higher rates for instance for inflation rates between 0 and 5 welfare in the two markets we consider 2 seller 2 buyer and 3 2 falls by roughly 1 percent for each percentage point rise in inflation compared with 0 4 percent over the range from 5 to 30 our findings lead us to conclude that the impact of the inflation tax should not be underestimated even under low inflation

are ideas getting harder to find in many growth models economic growth arises from people creating ideas and the long run growth rate is the product of two terms the effective number of researchers and their research productivity we present a wide range of evidence from various industries products and firms showing that research effort is rising substantially while research productivity is declining sharply a good example is moore s law the number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s across a broad range of case studies at various levels of dis aggregation we find that ideas and in particular the exponential growth they imply are getting harder and harder to find exponential growth results from the large increases in research effort that offset its declining productivity

sorting and decentralized price competition we investigate the role of search frictions in markets with price competition and how it leads to sorting of heterogeneous agents there are two aspects of value creation the match value when two agents actually trade and the probability of trading governed by the search technology we show that positive assortative matching obtains when complementarities in the former outweigh complementarities in the latter this happens if and only if the match value function is root supermodular that is its nth root is supermodular where n reflects the elasticity of substitution of the search technology this condition is weaker than the condition required for positive assortative matching in markets with random search

secondary currency an empirical analysis abstract many cases exist of multiple currency usage throughout history as two leading examples secondary currencies were widespread during both the great depression in the united states and the 2002 recession in argentina what are the determinants of multiple currency usage and what is the effect on economic activity both issues are empirically addressed using individual level surveys collected by the authors in argentina during 2002 and 2003 the evidence supports the theoretically predicted determinants of secondary currency acceptability put forth in monetary theory in particular findings show that the acceptability of the secondary currency increases when the supply of national currency is low the relative transaction cost of the secondary currency is low and the individual trading technologies are less effective moreover the acceptability of the secondary currency has real effects on economic activity among those who use the secondary currency the monthly income gain is more than 15 of the average argentine s monthly income excluding trades of used goods this amounts to a 0 6 increase in gdp

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

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

a search model of unemployment and inflation in this paper i introduce money in the standard labor matching model mortensen and pissarides 1999 pissarides 2000 a double coincidence problemmakes fiat money necessary as a medium of exchange in the long run a rise inthe rate of money growth leads to higher inflation and higher unemployment sothe long run phillips curve is not vertical the optimal monetary growth ratedecreases with the workers bargaining power the level of unemploymentbenefits and the payroll tax rate

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

nonlinear dynamics in discretionary accruals an analysis of bank loan loss provisions abstract several studies have analyzed discretionary accruals to address earnings smoothing behaviors in the banking industry we argue that the characteristic link between accruals and earnings may be nonlinear since both the incentives to manipulate income and the practical way to do so depend partially on the relative size of earnings given a sample of 15 268 us banks over the period 1996 2011 the main results in this paper suggest that depending on the size of earnings bank managers tend to engage in earnings decreasing strategies when earnings are negative big bath use earnings increasing strategies when earnings are positive and use provisions as a smoothing device when earnings are positive and substantial cookie jar accounting this evidence which cannot be explained by the earnings smoothing hypothesis is consistent with the compensation theory neglecting nonlinear patterns in the econometric modeling of these accruals may lead to misleading conclusions regarding the characteristic strategies used in earnings management

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

inflation and welfare in retail markets prior production and imperfectly directed search this paper considers the effect of monetary policy and inflation on retail markets goods are dated and produced prior to being retailed buyers direct their search on price and general quality buyers match specific tastes are private information sellers set the same price for all buyers some of whom do not value the good highly enough to buy it the market economy is typically inefficient as a social planner would have the good consumed under free entry of sellers the friedman rule is optimal policy when the upper bound on the number of participating sellers binds moderate levels of inflation can be welfare improving

commodity price stabilization in imperfect or cartelized markets most studies of commodity price stabilization assume that all agents behave competitively however many commodities suitable for stockpiling are produced by countries with a significant share of the world market and commodity agreements themselves often result in cartelization of the market the paper explores the consequences of market power for the choice of storage rule and the degree of price stabilization it finds that with linear demand dominant producers choose more stable prices than under perfect competition and price stability increases with their market share with constant elastic demand the competitive degree of price stabilization is achieved

social norms and money abstract in an economy where there is no double coincidence of wants and without public record keeping of past transactions money is usually seen as the only mechanism that can support exchange in this paper we show that as long as the population is finite and agents are sufficiently patient a social norm establishing gift exchange can substitute for money however for a given discount factor population growth eventually leads to the breakdown of the social norm additionally increases in the degree of specialization in the economy can also undermine the social norm by contrast monetary equilibrium exists independent of the population size we conclude that money is essential as a medium of exchange when the population is large

generalized search theoretic models of monetary exchange abstract virtually all simple search models of money assume agents with money cannot produce and so everyone has either 0 or 1 units of money in steady state we alternatively assume agents can always produce and simply restrict money inventories to 0 or 1 this seems better for many issues for example in the standard model it is difficult to interpret increases in the money supply because increasing the fraction of agents holding money decreases the economy s productive capacity our model avoids these problems and thus delivers more natural and simpler implications in many contexts we compare results on existence multiplicity and welfare across models

toward a theory of international currency we use the framework of random matching games and develop a two country model of the world economy in which two national currencies compete and may be circulated as media of exchange there are multiple equilibria which differ in the areas of circulation of the two currencies in one equilibrium the two national currencies are circulated only locally in another one currency is circulated as an international currency there is also an equilibrium in which both currencies are accepted internationally we also find an equilibrium in which the two currencies are directly exchanged we first characterize the existence conditions of these equilibria in terms of the relative country size and the degree of economic integration and then use an evolutionary approach to equilibrium selection to explain the evolution of the international currency as the two economies become more integrated some welfare implications are also discussed for example a country can improve its national welfare by letting its own currency circulate internationally provided the domestic circulation is controlled for when the total supply is fixed however a resulting currency shortage may reduce the national welfare

compensation for quality difference in a search model of money we study an economy in which there is always double coincidence of wants agents have perfect information about qualities of goods and there are no transaction costs the hold up problem arises because efforts invested in improving quality prior to search may not be compensated in the market situations in which barter fails to motivate quality improvement are identified with money however the extra effort in quality improvement will be compensated when high quality good producers trade with agents holding both the low quality good and money injection of money can induce almost all agents to produce the high quality good

debt covenant violation and manipulation of accruals abstract this paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports we expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation time series and cross sectional models are used to estimate normal accruals in the year prior to violation both models indicate that abnormal total and working capital accruals are significantly positive in the year of violation there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications

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

complementary credit networks and macroeconomic stability switzerland s wirtschaftsring abstract the swiss wirtschaftsring economic circle credit network founded in 1934 provides residual spending power that is highly counter cyclical individuals are cash short in a recession and economize by greater use of wir credits a money in the production function mipf specification implies that transactions in wir form a stabilizing balance that makes up for the lack of ordinary currency thus unlike the ordinary money wir money is negatively correlated with gdp in the short run this implication is confirmed by empirical estimates such credit networks play a stabilizing role that should be considered in monetary policy

inflation and capital accumulation under a finite horizon abstract the effect of inflation on demand for capital and the aggregate capital labor ratio is investigated in a finite horizon utility maximization model it is shown that deriving saving and asset choice decisions from utility maximization does not in itself lead to superneutrality independence of steady state capital labor ratio from the rate of monetary growth as in the work of sidrauski and that a finite horizon is crucial in explaining this difference it is further shown that it is possible under very general conditions to show that increases in the rate of inflation will increase the aggregate capital labor ratio allowing us to extend the mundell tobin effect to a wider class of models

money as a medium of exchange in an economy with artificially intelligent agents abstract we study the exchange economies of kiyotaki and wright 1989 in which agents must use a commodity or fiat money as a medium of exchange if trade is to occur our agents are artificially intelligent and are modeled as using classifier systems to make decisions in the assignment of credit within the classifier systems we introduce some innovations designed to study sequential decision problems in a multi agent environment for most economies that we have simulated trading and consumption patterns converge to a stationary nash equilibrium even if agents start with random rules in economies with multiple equilibria the only equilibrium that emerges in our simulations is the one in which goods with low storage costs play the role of medium of exchange i e the fundamental equilibrium of kiyotaki and wright

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

lack of recall and centralized monetary trade we introduce lack of recall of past transactions as an alternative assumption to anonymity in a model where trade is centralized in environments where there is an intertemporal lack of double coincidence of wants problem and lack ofcommitment lack of recall can give rise to monetary equilibria that dominate nonmonetary outcomes in terms of welfare

currency areas and monetary coordination we integrate a monetary search model into open economy macro to analyze the gains from coordinating on inflation search frictions and local congestion lead to a determinate exchange rate between two currencies relative prices deviate from the law of one price because the deviations depend on the cross country differential in money growth each country is tempted to inflate to exploit the deviations policy coordination reduces inflation and improves welfare for all countries in contrast to traditional models the gains from coordination continue to exist even after each country optimally sets a direct tax on the foreign use of the country s currency

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

inflation and productive activity in a multiple matching model of money abstract this paper investigates the relationship between money growth inflation and productive activity in a dynamic general equilibrium multiple matching framework where trade frictions are manifested by limited consumption variety productive activity and matching in the goods market are endogenized by a time allocation decision of work and search effort we find that a high degree of complementarity between participation in the labor and goods markets creates a channel by which inflation can positively influence production and output this feature arises when household preferences for consumption variety is sufficiently large and it can also lead to the multiplicity of monetary equilibria

liquidity quality production cost and welfare in a search model of money this paper examines a search model of money with divisible commodities of high and low quality while keeping the assumptions of indivisible money and unit inventory constraint with no direct barter and a higher fixed cost of producing high relative to low quality an increase in the money stock encourages the production of high quality output by trading off the larger trading opportunities against the significance of higher fixed cost as long as the fixed cost differential between high and low quality is sufficiently small relative to the utility gain from high quality consumption the quality improvement outweighs the negative effect of higher money stocks on aggregate production and hence implies higher welfare the most important function of money is its role as a medium of exchange wicksell 1906 1967 p 17 defined a general medium of exchange to be an object which is habitually and without hesitation taken by anybody in exchange for any commodity the main challenge facing monetary theory is to construct a model which permits the object s role in exchange to be endogenous 1 kiyotaki and wright 1991 1993 seems to be the first fully coherent model which specifies the environment and equilibrium concept in a way that does not force at the outset the assumption on which objects will play a special role in trade the kiyotaki wright model departs from the physical environment of the standard general equilibrium model through the assumption that trading histories are private information the medium of exchange role of money is obtained as an outcome of nash equilibrium together with some bargaining rule in pairwise random meetings however the standard kiyotaki wright model yields an undesirable welfare implication that an increase in the money stock eventually leads to a decrease in welfare because of a decrease in the number of agents who get to consume in a given period the same welfare property is obtained in the models with divisible commodities such as trejos and wright 1995 and shi 1995 2 this property has been regarded as the outcome of the original kiyotaki wright assumptions of indivisible money and the inventory constraint agents can only carry one object either commodity or money at a time despite simplifying the distribution of money holdings these assumptions impose the restriction that agents are not allowed to produce while they hold money

accounting information and corporate governance market and analyst reactions to earnings of firms engaged in proxy contests abstract this paper studies market and analyst reactions to earnings i during a proxy contest for board seats and ii after a proxy contest induced management change despite indications of earnings management during the proxy contest market and analyst reactions are more pronounced than in prior periods and earnings surprises explain more of the cross sectional variation in these reactions market and analyst reactions to earnings released after a successful proxy contest are less pronounced than in prior periods and earnings surprises explain less of the variation in these reactions perhaps due to new managements tendency to take an earnings bath

bidding for money we analyze monetary exchange in a model that allows for directed search and multilateral matches we consider environments with divisible goods and indivisible money and compare the results with those in models that use random matching and bilateral bargaining two different pricing mechanisms are used ex ante price posting and ex post bidding auctions also we consider settings both with and without lotteries we find that the model generates very simple and intuitive equilibrium allocations that are similar to those with random matching and bargaining but with different comparative static and welfare properties

on the timing of production decisions in monetary economies in most macroeconomic models inflation tends to be harmful in this paper we show that by simply changing the timing of production decisions by firms from on demand to in advance some inflation can boost welfare as long as goods are sufficiently perishable the main conclusion from this research is that by effectively hiding the strategic interaction between supply and demand assuming production on demand is not without loss of generality

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

the evolution of monetary equilibrium abstract the hahn problem is that even if a monetary equilibrium with valued fiat money exists in general equilibrium a nonmonetary equilibrium with a zero price on money generally also exists why should we expect the former over the latter here i consider the preferences that will survive repeated trading in an exchange economy where agents compete in biological fitness with unobservable preferences and positive assortativity in matching evolutionarily stable preferences implement the competitive equilibrium that maximizes the sum of agents fitnesses in a standard bewley townsend model this implies selection of the monetary over the nonmonetary equilibrium and also implies the survival of agents with money in the utility function trust in fiat money is only a recent development and even today such faith is hardly universal cass and shell 1980

endogenous market formation and monetary trade an experiment the theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange however endogenizing the exchange process is critical for understanding the conditions that support the use of money we develop a traveling game to study the emergence of decentralized and centralized exchange theoretically and experimentally players located on separate islands can either trade locally or pay a cost to trade elsewhere so decentralized and centralized markets can both emerge in equilibrium the former minimize trade costs through monetary exchange the latter maximizes overall surplus through nonmonetary exchange monetary trade emerges when coordination is problematic whereas centralized trade emerges otherwise this shows that to understand the emergence of money it is important to amend standard theory such that the market structure is endogenized

existence of steady states with positive consumption in the kiyotaki wright model we prove the general existence of steady states with positive consumption in an n goods and fiat money version of the kiyotaki wright model by admitting mixed strategies we also show that there always exists a steady state in which everyone accepts a least costly to store object in particular if fiat money is one such object then there always exists a monetary steady state we also establish some other properties of steady states and comment on the relationship between steady states and incentive feasible allocations

sorting versus screening search frictions and competing mechanisms in a market where sellers compete by posting trading mechanisms we allow for a general search technology and show that its features crucially affect the equilibrium mechanism price posting prevails when meetings are rival i e when a meeting by one buyer reduces another buyer s meeting probability under price posting buyers reveal their type by sorting ex ante only if the meeting technology is sufficiently non rival price posting is not an equilibrium multiple buyer types then visit the same sellers who screen ex post through auctions

a theory of a generally acceptable medium of exchange and barter abstract this paper develops a model that accounts both for the existence of money defined as a generally acceptable medium of exchange and for the survival of some barter exchange in economies in which money exists in contrast to jones 1976 seminal article in which individuals are restricted to fix trading strategies before entering the market the present model assumes that individuals have conditional trading strategies that allow them to effect exchange according to the types of trades they encounter in the market the analysis shows how decentralized market forces generate money and lead to a unique level of monetization

money with partially directed search abstract partially directed search replaces the total randomness of monetary search models agents choose whether to stay in their production location or visit other locations each visiting agent randomly chooses one shop among many in each location as in random matching models a commodity or fiat object can endogenously become money but the details are richer and conform better with evidence any commodity can be money the best commodity is the most likely money fiat money can totally crowd out commodity money in an asymmetric environment going shopping is more likely than door to door sales the model nests walrasian equilibria

annual bonus schemes and the manipulation of earnings abstract using confidential data of executive specific short term bonus plans we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments as such this paper extends the work of healy 1985 like healy we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum unlike healy we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus we demonstrate that healy s results at the lower bound are likely to be induced by his methodology

evolutionary stability and media of exchange abstract the kiyotaki and wright model 1989 of money as a medium of exchange is analyzed within an evolutionary framework it is shown that fundamental speculative and polymorphic states can all be stable and that there may exist a multiplicity of stable states stringent assumptions regarding information and rationality are therefore unnecessary in order to explain the use of money as a medium of exchange even when the existence of a stable medium requires some individuals to trade their production good for one with a higher storage cost or when otherwise identical individuals must adopt different exchange strategies

directed search coordination failure and seller profits an experimental comparison of posted pricing with single and multiple prices we experimentally examine posted pricing and directed search in one treatment capacity constrained sellers post fixed prices which buyers observe before choosing whom to visit in the other firms post both single buyer applied when one buyer visits and multibuyer when multiple buyers visit prices we find based on a 2 2 two buyers and two sellers market and a follow up experiment with 3 and 2 3 markets that multibuyer prices can be lower than single buyer prices or prices in the one price treatment also allowing the multibuyer price does not affect seller profits and increases market frictions

money capital and redistributive effects of monetary policies abstract this paper examines the redistributive role of expansionary monetary policies for this purpose a physical environment with heterogeneous agents is described to emphasize two frictions one is a within market friction that agents cannot borrow within each market the other is a cross market friction that agents cannot borrow across markets although a contractionary monetary policy is required to eliminate the within market friction as in many previous monetary models an expansionary monetary policy is required to eliminate the cross market friction when both frictions are operational no monetary policy alone can restore efficiency and the second best monetary policy requires the money growth rate to exceed the friedman rule the first best allocation can be achieved by a combination of fiscal policies and the friedman rule

inventory accumulation in a search based monetary economy abstract this paper explores the implications of a search based model of money for the linkage between steady state inventory accumulation inflation and welfare because individual traders in the search economy do not internalize the positive effects inventory accumulation and search effort have on the aggregate economy they are too low relative to social efficiency it is established that a tax on money balances can alleviate these externalities and improve aggregate welfare it does so by i directly increasing the optimal search intensity choices of the individual trader and ii stimulating the accumulation of inventories through a mundeil tobin type effect an increase in the equilibrium level of inventory accumulation also positively affects search effort the implications for optimal monetary policy are discussed

decentralized international exchange traditional models of international trade take place within trading environments in which trade is coordinated by a walrasian auctioneer who instantly matches buyers and sellers in world markets this assertion seems inconsistent with evidence suggesting that trading arrangements seem to economize on transactions costs associated with international trade recognizing these insights we depart from standard models of international trade by incorporating the difficulties in the coordination of exchange within a two country random matching model of international trade we capture a motivation for trade through comparative advantage and interpret trade across economies to be associated with an agent s endogenous choice to participate in foreign markets although an individual may decide to search abroad to obtain additional gains from trade resulting from comparative advantage she is less likely to meet trading partners abroad as search frictions are higher in the foreign country than in the domestic market using this framework we show that international trade is associated with convergence in relative prices across countries we also show that the extent of market frictions in the foreign country affects relative prices the volume of international trade and welfare levels due to market participation externalities associated with international trade we show that a movement from autarky to free trade may actually lower welfare levels we conclude by examining the possible inefficiencies associated with international trade due to the decentralized nature of exchange and the policy implications of our model

the baby boomers and the productivity slowdown abstract the entry of baby boomers into the labor force in the late 1960s and 1970s slowed growth for physical and human capital per worker because young workers have little of both thus the baby boom could have contributed to the productivity slowdown i build and calibrate a model a la huggett et al 2011 with exogenous population growth life expectancy retirement and tfp to evaluate this theory the baby boom alone accounts for 53 of the slowdown in the period 1964 69 18 in 1970 74 and 6 in 1975 79

asymmetric stationarity in national stock market indices an mtar analysis a procedure is developed using a momentum threshold autoregressive model and asymmetric stationarity tests designed to identify periods of asymmetric stationary divergences from nonstationary paths in time series and is applied to major national stock indices the results reveal the existence of asymmetric stationary periods in each of these indices these results suggest an explanation for the counterintuitive positive forecasting results of technical traders for various time periods we explore this possibility further by using a representative moving average technical trading strategy and find significantly different results higher returns when information from the procedure is incorporated into a trading rule

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

a new suggestion for simplifying the theory of money we propose a new search theoretic model of monetary exchange with indivisible assets based on price posting instead of bargaining and incorporating noisy search this yields some familiar results plus a lot more the model admits multiple steady states due to the self referential nature of liquidity it admits cyclic chaotic and stochastic equilibria and compared to bargaining versions the dynamics are more general and have better microfoundations it generates price dispersion with interesting efficiency implications plus sticky prices and rational inattention parametric examples yield closed form solutions based on these results we suggest this should become a benchmark model in monetary economics

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

buyers and sellers should i stay or should i go this paper explores some aspects of the exchange process that should be of interest to economists who use search theory and especially to those who use search as a foundation for monetary economics we are mainly concerned with a question that seems basic but has not been analyzed previously is there some way to determine endogenously which agents are willing to invest resources in the process of active search for trading partners and which agents prefer to wait passively for trading partners to come to them in particular given a group of buyers with money and a group of sellers with goods is there any reason to expect that buyers will search for sellers rather than the other way around one obvious factor is the relative cost of transporting goods and money but we are interested in examining whether there is anything about the process of monetary exchange per se and not merely exogenous search costs that makes buyers more willing than sellers to bear the costs of seeking out trading partners we investigate this within a generalized version of the search theoretic model of fiat money in kiyotaki and wright 1991 1993 we find that there may exist equilibria in which buyers search while sellers do not even if the search cost is greater for the former however there can also exist other equilibria with different properties perhaps the key finding is that the situation is not symmetric factors that determine whether to search are fundamentally different for buyers and sellers one property of an equilibrium in which only buyers search is that money appears on one side of every transaction because if sellers do not search they do not meet and cannot barter this is consistent robert w clower s 1967 observation that money buys goods and goods buy money but goods do not buy goods although here it is derived endogenously rather than assumed some search based monetary models simply rule out barter including peter a diamond 1984 douglas m gale 1986 diamond and joel yellin 1990 alessandra casella and johnathon s feinstein 1990 kiminori matsuyama et al 1993 victor e li 1995 and alberto trejos and wright 1995 it is difficult to motivate this absence of barter in these papers in a model that is similar to the one used here except search is costless s rao aiyagari and neil wallace 1992 prove that all equilibria involve some barter a contribution of this paper is to show that barter may disappear once the decision to search is endogenized

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

non discretionary conservatism evidence and implications a large body of accounting research finds that various contracting incentives lead managers to engage in conservative accounting practices we extend existing research by modeling the impact of extant accounting rules on conservative accounting accounting rules typically require assets to be written down when their fair values drop sufficiently below their book values we document evidence of the resulting non discretionary conservatism and show that it appears to explain some of the results from previous research on contracting incentives

adaptability productivity and educational incentives in a matching model abstract we study the connections between the labour market and the education sector in a matching framework with ex post wage bargaining workers have multidimensional skills and the search market is segmented by technology education is a time consuming activity and determines jointly the scope or adaptability and intensity or productivity of individual skills we establish three main results first unemployment provides incentives to schooling by raising the need for adaptability second private returns to productivity are below social returns but no hold up phenomenon is involved third due to wage and congestion externalities private returns to adaptability exceed social returns as a consequence both over and under education may take place in equilibrium

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

friedman meets hosios efficiency in search models of money this article studies optimal monetary policy in an economy with endogenous search decisions we show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades the friedman rule eliminates the first inefficiency and the hosios rule the second a monetary equilibrium attains the social optimum if and only if both rules are satisfied when they cannot be satisfied simultaneously optimal monetary policy achieves only the second best we analyse the conditions under which the second best monetary policy exceeds the friedman rule

additional evidence on bonus plans and income management abstract we extend healy 1985 by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980 1990 period contrary to healy we find that when earnings before discretionary accruals fall below the lower bound managers select income increasing discretionary accruals and vice versa we believe that our results are more consistent with the income smoothing hypothesis than with healy s bonus hypothesis however mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results

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

why fiat money is a safe asset abstract this paper presents a model in which 1 fiat money has strictly positive value in the unique trembling hand equilibrium this holds as each bank note is both a a witness for the existence of some agent in the economy with debt backed by collateral and b the only matter that allows the debtor to settle her debt the fear to lose the collateral creates future money demand by the debtor and thereby ensures positive money value 2 money is a safe asset as not only a single but all debtors in the economy demand money so that idiosyncratic shocks to solvency wash out by this mechanism fiat money is essentially equivalent to large securitized pools of debt which 3 can establish the pooling allocation even if pooling itself is infeasible

a simple general equilibrium version of the baumol tobin model this paper presents a simple general equilibrium model that includes optimizing choices of the frequency of trips to the bank the model is used to analyze the effect of inflation on the capital stock the interest elasticity of money demand the optimum quantity of money and the welfare costs of inflationary finance

a dynamic equilibrium model of search production and exchange we study a general equilibrium model where agents search for production and trading opportunities that generalizes the existing literature by considering a large number of differentiated commodities and agents with idiosyncratic tastes thus agents must choose nontrivial exchange as well as production strategies we consider decreasing constant and increasing returns to scale in the matching technology and characterize the circumstances under which there exist multiple steady state equilibria or multiple dynamic equilibria for given initial conditions we also characterize the existence of dynamic equilibria that are limit cycles equilibria are not generally optimal and when multiple equilibria coexist they may be ranked we analyze comparative statics and find that certain intuitive results do not necessarily hold without restrictions on the stochastic structure

capitalism and socialism a review of kornai s dynamism rivalry and the surplus economy understanding the nature of capitalism has been a central theme of economics the collapse of the eastern bloc and the global financial crisis spurred the reemergence of the political economy as a new frontier and the revival of interest in the nature of capitalism janos kornai s book dynamism rivalry and the surplus economy two essays on the nature of capitalism fills an important intellectual gap in understanding the dynamic nature of capitalism by comparing it with its mirror image socialism to further develop the themes contained in the book serious challenges are posed theoretically and empirically as well as in subjects such as hybrid capitalism