efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

bilateral trading with naive traders we introduce naive traders in bilateral trading these traders report their true types in direct mechanisms and bid ask their values costs in auctions we show that by expropriating naive traders in direct mechanisms the mechanism designer can subsidize additional trades by strategic traders and improve efficiency in fact complete expropriation of naive traders is a necessary condition for constrained efficiency a significant implication is that in the presence of naive traders ex post individually rational mechanisms are not constrained efficient in contrast if the traders must use a given mechanism then the introduction of naive traders has an ambiguous effect on efficiency

stochastic stability in a double auction abstract in a k double auction a buyer and a seller must simultaneously announce a bid and an ask price respectively exchange of the indivisible good takes place if and only if the bid is at least as high as the ask the trading price being the bid price with probability k and the ask price with probability 1 k we show that the stable equilibria of a complete information k double approximate an asymmetric nash bargaining solution with the seller s bargaining power decreasing in k note that ceteris paribus the payoffs of the seller of the one shot game increase in k nevertheless as the stochastically stable equilibrium price decreases in k choosing the seller s favorite price with a relatively higher probability in individual encounters makes him worse off in the long run

a parametrization of the auction design space abstract we present an extensive breakdown of the auction design space that captures the essential similarities and differences of many auction mechanisms in a format more descriptive and useful than simple taxonomies this parametrization serves as an organizational framework in which to classify work within the field and uncovers parameter combinations corresponding to novel mechanisms the structured characterization of auction rules can be exploited for the modular design of configurable auction servers it also facilitates the communication of auction rules to software agents enabling the automation of flexible market based negotiation journal of economic literature classification numbers c70 d44

optimal trading mechanisms with ex ante unidentified traders abstract we analyze optimal trading mechanisms in an exchange economy where each trader owns some units of a good to be traded and may be either a seller or a buyer depending on the realization of the privately observed valuations the concept of virtual valuation is extended to ex ante unidentified traders the traders virtual valuations now depend on the choice of the trading mechanism and are generally nonmonotonic we show that the trading mechanisms that maximize a broker s expected profit or expected total gains from trade are generalized double auctions which maximize the gains from trade measured in some modified monotonic virtual valuations for the traders the bunching phenomena will be a general feature in these mechanisms we also show that the optimal mechanisms converge towards simple bid ask price mechanisms as the number of participants in the market increases journal of economic literature classification numbers d44 d82

what has and has not been learned about monetary policy in a low inflation environment a review of the 2000s as the world economy recovers from the worst financial crisis and most severe global slump in 75 years policymakers regulators and academics are focusing intensely and appropriately on lessons to be learned for monetary policy there are certainly many questions to answer among the most important are are inflation expectations well anchored what if any influence should asset quantities and prices have on monetary policy do we have sufficient confidence in our alternative monetary policy tools to stabilize the economy at the zero lower bound

the effects of statistically dependent values on equilibrium strategies of bilateral k double auctions abstract this paper describes how introducing statistical dependency among trader values changes the equilibrium bidding strategies in bilateral k double auctions and uses the special case of affiliation to illustrate the range of equilibrium responses to a change in the value distribution consistent with standard intuition a change from independent to strictly affiliated valuations can result in high value buyers and low value sellers bidding closer to their actual values while low value buyers and high value sellers distort their bids farther from their true values however there also exist equilibria for which either type of trader responds to a change in the distribution of values in the opposite direction whether a given trader bids more aggressively or less aggressively can also be non monotonic with respect to the trader s value

does resorting to online dispute resolution promote agreements experimental evidence abstract this paper presents an experiment performed to test the properties of an innovative bargaining mechanism called automated negotiation used to resolve disputes arising from internet based transactions the main result shows that the settlement rule tends to chill bargaining as it creates incentives for individuals to misrepresent their true valuations which implies that automated negotiation is not able to promote agreements however this perverse effect depends strongly on the conflict situation when the threat that a disagreement occurs is more credible the strategic effect is reduced since defendants are more interested in maximizing the efficiency of a settlement than their own expected profit the implications of these results are then used to discuss the potential role of public regulation and reputation mechanisms in cyberspace

how trading institutions affect financial market performance some laboratory evidence i introduction trading institutions vary considerably across contemporary financial markets 1 but most can be classified into one of two basic types the continuous double auction da allows traders to submit public offers to buy or to sell and to accept other traders offers at any moment in time the double auction institution offers immediacy but non uniform transaction prices the other basic trading institution the clearinghouse ch gathers offers and clears them at a unified price at a pre specified time it sacrifices immediacy for uniform transaction prices 2 the two types of institutions have co existed and evolved for centuries but now are emerging in new electronic versions market participants and policy makers would like to know which institution or variant or combination is most efficient but theoretical and empirical work to date provides little guidance this paper reports on a series of laboratory asset markets experiments designed to compare variants of the double auction and clearinghouse trading institutions the markets are small usually with eight or nine traders but the traders are profit motivated and experienced with the trading institutions the traded asset has uncertain market value and traders receive useful but inconclusive private information they can only learn the asset s true value during the course of trade laboratory markets offer several advantages for empirical study of financial market institutions first private information is observable even controllable in the laboratory and therefore the investigator can directly measure market efficiency 3 second the complexity of the environment can be varied systematically in the laboratory and its effects on market performance can be separated from the effects of the market institution and other forces finally the market institution itself is controllable in the laboratory so it is possible to make valid causal inferences on how the market institution shapes market performance i begin with a survey of relevant literature and other preliminaries in the rest of this section section ii outlines the laboratory procedures the creation of trading environments of varying complexity the electronic implementation of the clearinghouse and double auction trading institutions the computation of theoretical benchmark prices and allocations and the measurement of market performance section iii collects the results following an illustrative account of a double auction trading period and a clearinghouse trading period i use descriptive statistics to summarize market performance in each of the thirty nine experiments the main conclusions are based on statistical comparisons of market performance across alternative market institutions the clearinghouse institution does surprisingly well it delivers greater market depth than the double auction discovers prices at least as efficiently and produces final allocations almost as efficient as the double auction the main institutional variants examined in this paper concern the amount of information made public regarding order placement orderflow the data suggest that public display of the orderflow enhances double auction efficiency but may impair clearinghouse efficiency a study of trading volume shows higher volume in the double auction in both institutions volume increases when important private news arrives and when the trading period is about to end the paper concludes with a brief summary and discussion of the results a companion paper friedman 1991 considers the effects of awarding various privileges to some but not all traders copeland and friedman 1987 1991 provide useful background information on laboratory procedures and computerized double auction markets instructions for the current experiments are available on request the need for empirical work a skeptic might argue that empirical work is unnecessary the mere fact that the double auction and clearinghouse institutions both persist in major financial markets implies that both are highly efficient because a more efficient institution would displace less efficient institutions

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

quality and competition between public and private firms abstract we study a multistage quality then price game between a public firm and a private firm the market consists of a set of consumers who have different quality valuations the public firm aims to maximize social surplus whereas the private firm maximizes profit in the first stage both firms simultaneously choose qualities in the second stage both firms simultaneously choose prices consumers quality valuations are drawn from a general distribution each firm s unit production cost is an increasing and convex function of quality there are multiple equilibria in some the public firm chooses a low quality and the private firm chooses a high quality in others the opposite is true we characterize subgame perfect equilibria equilibrium qualities are often inefficient but under some conditions on consumer valuation distribution equilibrium qualities are first best various policy implications are drawn

partnerships and double auctions with interdependent valuations in a symmetric independent private values setting a sealed bid double auction dissolves a partnership efficiently this well known result remains valid in a model with interdependent valuations however if common values components are large agents might prefer not to participate in a double auction therefore a simple extention of the rules of double auctions is suggested that ensures participation even though these modified double auctions are not incentive efficient they still realize gains from trade and can be implemented without knowledge about the specifications of the model

quantitative easing a sceptical survey evaluation of quantitative easing qe is difficult as it is only used in response to severe and unusual economic difficulties despite this we argue that two main conclusions can be drawn from a sceptical reading of the evidence first large scale asset purchases reduce government bond rates especially at the longer end of the yield curve however this effect may be temporary and is small if bond rates are already low while initial waves of qe are more effective than subsequent programs second qe appears to have been effective in late 2008 and 2009 preventing even larger declines in output and inflation than were experienced we argue that the literature is limited relying on similar methodologies and largely originating in central banks exploration of alternative approaches to qe would be useful in widening an evidence base that is currently too narrow

vote trading with and without party leaders two groups of voters of known sizes disagree over a single binary decision to be taken by simple majority individuals have different privately observed intensities of preferences and before voting can buy or sell votes among themselves for money we study theoretically and experimentally the implication of such trading for outcomes and welfare when trades are coordinated by the two group leaders and when they take place anonymously in a competitive market the theory has strong predictions in both cases trading falls short of full efficiency but for opposite reasons with group leaders the minority wins too rarely with market trades the minority wins too often as a result with group leaders vote trading improves over no trade with market trades vote trading can be welfare reducing the theoretical predictions are strongly supported by the experimental data

existence and convergence of equilibria in the buyer s bid double auction this paper concerns a bayesian game model of the buyer s bid double auction which is a procedure for organizing trade that selects a market clearing price from a list of offers bids strategic misrepresentation by traders may make the outcome of trade inefficient satterthwaite and williams 1989 showed that misrepresentation and inefficiency quickly converge to zero as the number of traders on each side of the market increases this is extended here to cases in which the number of buyers may differ from the number of sellers the existence of equilibria in a generic instance of the model is also proven this paper concerns a market in which each trader privately knows his own preferences such a trader may have an incentive to misrepresent his preferences in order to influence the market price in his favour a buyer for instance may bid less than his true evaluation of the good for sale in an attempt to drive the price down similarly a seller may ask for more than he is willing to accept with behaviour of this kind a seller s offer could exceed a buyer s bid even though a mutually profitable trade between them exists in the market as a whole a price may be determined at which all potential gains from trade are not achieved strategic misrepresentation may therefore cause inefficiency our confidence in markets rests upon the belief that this inefficiency is insignificant when there are a large number of small traders a small trader in a large market is unlikely to have much influence on the market price as a consequence he has little incentive to misrepresent and the market is therefore almost fully efficient this argument however is vague about a very important point when is a trader relatively small and how many traders constitute a large market the meaning of small and large in this context is critical to understanding when this intuitive argument applies this argument is investigated here by thoroughly analyzing a particular model of trade a market is considered in which money may be exchanged for indivisible units of a good for n m 1 there are n sellers each of whom has a unit to sell and m buyers each of whom wishes to buy a unit each trader is therefore small in that he trades at most one unit we shall consider arbitrary values of n and m however trade is organized with the following rules each seller submits an offer while each buyer submits a bid the n m offers bids are ordered in a list sl s2 sn m any

the rate of convergence to efficiency in the buyer s bid double auction as the market becomes large a trader who privately knows his preferences may misrepresent them in order to influence the market price this strategic behaviour may prevent realization of all gains from trade in this paper trade in a simple market with an explicit rule for price formation is modelled as a bayesian game we show that the difference between a trader s bid and his reservation value is maximally 0 1 m where m is the number of traders on each side of the market competitive pressure as m increases thus quickly overcomes the inefficiency private information causes and f ces the market towards an efficient allocation

bad and good news about the sealed bid mechanism some experimental results this paper surveys a set of experiments conducted by roy radner and myself 1989 and peter linhart radner and myself 1989a b all of which were conducted to investigate the properties of the sealed bid mechanism a mechanism used to structure bargaining under situations of incomplete information what we find is both bad news and good news for the mechanism the bad news is that the behavior of subjects seems quite sensitive to the parameters of the prior distribution of types used and the number of rounds over which the experiment is run as such prior distributions become more skewed in a sense to be defined below and the number of rounds in the experiment are increased to 75 bidder behavior becomes less linear such movements have a regular pattern however and this phenomenon is remarkably consistent the good news is that such behavioral shifts do not seem to interfere with the efficiency of the mechanism this is of course important for the acceptance of the mechanism in the real world since if efficiency were to change dramatically as we change the parameters of the environment adoption would have to proceed on a case by case basis the fact that our results imply robustness of efficiencies indicates that at least on a practical level the sealed bid mechanism may be a viable way to structure bargaining in many large scale economic organizations i the sealed bid mechanism

long run neutrality high inflation and bank insolvencies in argentina and brazil abstract using long low frequency data on money and output over 1884 1996 for argentina and over 1912 1995 for brazil it is found that money is long run neutral but not long run superneutral with regard to real output a rise in money growth is associated with a decline in output the opposite of the tobin effect the introduction of dummy variables for 1930s or to capture recent periods of financial disruption associated with bank insolvencies does not restore long run superneutrality for either country however results indicate that bank insolvency episodes have a distinct and negative influence on output

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

the rate of convergence to perfect competition of matching and bargaining mechanisms abstract we study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information a friction parameter is the length of the time period until the next meeting we provide a necessary and sufficient condition for the convergence of mechanism outcomes to perfect competition at the linear rate in which is shown to be the fastest possible among all bargaining mechanisms the condition requires that buyers and sellers always retain some bargaining power the bargaining mechanisms that satisfy this condition are called nonvanishing bargaining power nbp mechanisms simple random proposer take it or leave it protocols are nbp while k double auctions k da are not we find that k das have equilibria that converge to perfect competition at a linear rate converge at a slower rate or even do not converge at all

on the superneutrality of money in a stochastic dynamic macroeconomic model abstract this paper explores the robustness of the superneutrality of money result to the introduction of uncertainty while qualitatively superneutrality fails to obtain in our model quantitatively the observed tobin effect is insignificant the equilibrium time paths of real variables are nearly unaffected by changes in the money growth rule we argue that our conclusions reinforce the theoretical case for superneutrality

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

stock market reaction to fed funds rate surprises state dependence and the financial crisis this paper examines the response of us stock returns to federal funds rate ffr surprises between 1989 and 2012 focusing on the impact of the recent financial crisis we find that outside the crisis period stock prices increased as a response to unexpected ffr cuts state dependence is identified with stocks exhibiting larger increases when interest rate easing coincided with recessions bear markets and tightening credit conditions however an important structural shift occurred during the crisis changing the stocks response to ffr shocks and the nature of state dependence throughout the crisis period stocks did not react positively to unexpected ffr cuts which were interpreted as signals of worsening future economic conditions this triggered a rebalancing of investment portfolios away from falling equities and towards safe haven assets our results highlight the severity of the crisis and the ineffectiveness of conventional monetary policy close to the zero lower bound

the reeded edge and the phillips curve money neutrality common knowledge and subjective beliefs abstract i present a simple two person auction model in which a seller and a buyer make bids in terms of money however the value of a unit of money is uncertain i show 1 a monetary revaluation has purely nominal effects if and only if it is common knowledge 2 if seller and buyer have identical beliefs making the value of money common knowledge maximizes total gains from trade 3 if seller and buyer are equally well informed and have identical beliefs then monetary revaluations have no net effect 4 when the seller knows the value of money but the buyer does not the expected utilities of both seller and buyer are proportional to 1 1 2 where is the standard deviation of the value of money expressed as a fraction of the mean and 5 when beliefs are subjective monetary policy can improve total gains from trade as in friedman s explanation of the phillips curve and an optimal level of inflation can be determined journal of economic literature classification numbers c78 e52

bargaining under incomplete information this paper presents and analyzes a bargaining model of bilateral monopoly under uncertainty under the bargaining rule proposed the buyer and the seller each submit sealed offers that determine whether the good in question is sold and the transfer price the nash equilibrium solution of this bargaining game implies an offer strategy of each party that is monotonic in its own reservation price and depends on its assessment of the opponent s reservation price issues of relative bargaining advantage and efficiency are examined for a number of special cases finally we discuss the appropriateness of the nash solution concept

reprint of information percolation in segmented markets we study equilibria of dynamic over the counter markets in which agents are distinguished by their preferences and information over time agents are privately informed by bids and offers investors differ with respect to information quality including initial information precision and also in terms of market connectivity the expected frequency of their bilateral trading opportunities we characterize endogenous information acquisition and show how learning externalities affect information gathering incentives more liquid markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large on the other hand for a small market duration the opposite may occur if agents vary sufficiently in terms of their market connectivity c 2014 published by elsevier inc

the role of monetary policy in eliminating nonconvergent dynamic paths this paper investigates the effects of money growth on nonconvergent dynamic paths in a money in utility model when relative risk aversion is decreasing in money period two cycle and sunspot equilibria are always associated with a high rate of money supply growth however when relative risk aversion is increasing in money it is ambiguous whether they are associated with either high or low rate of money supply growth the paper also investigates the same problem in a transaction cost model the author shows that the results essentially depend on the form of the transaction cost function copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

minimax regret strategies for bargaining over several variables for the sealed bid mechanism for bilateral bargaining we explore models in which each player bids so as to minimize his maximum regret here regret is defined as the difference between the profit the player could have made with the wisdom of hindsight and the profit he actually made we study bargaining over both price and quantity as well as over more general sets of bargaining alternatives with complete and incomplete information in each case there is a minimax regret strategy that is linear in the true value or cost and the minimax regret is not unacceptably large journal qf economic literature classification numbers 022 026

equilibria existence and characterization in auctions achievements and open questions establishing existence and characterizing equilibria is a fundamental step in the study of auctions theoretical characterizations and empirical predictions are well accepted only to the extent that they are based on equilibria however despite the fact that auctions have been extensively studied there are still many problems regarding equilibrium existence and characterization waiting for resolution in this survey we review the landmark results and highlight open questions in addition we review the standard assumptions underlying these results and discuss the suitability of the nash equilibrium solution concept we focus our review on single object auctions but also review results in multi unit divisible combinatorial and double auctions

the transmission of monetary policy through redistributions and durable purchases this paper studies a redistribution channel for the transmission of monetary policy using a tractable olg setting in which the government is a net debtor we show that standard open market operations omo conducted by central banks have signi cant revaluation eects that alter the level and distribution of wealth in the economy and the real interest rate expansionary omo generate a negative wealth eect the private sector as a whole is a net creditor to the government increasing households incen tives to save for retirement and pushing down the real interest rate this in turn leads to a substitution towards durables generating a temporary boom in the durable good sector with search and matching frictions a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand raising aggregate employment the mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions the model shows that dierent monetary interventions e g omo versus helicopter drops can have sharply dierent eects on activity

the rate at which a simple market converges to efficiency as the number of traders increases an asymptotic result for optimal trading mechanisms private information in an independent private values market provides incentives to traders to manipulate equilibrium prices strategically this strategic behavior precludes ex post efficient market performance increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders bids and offers reveal this paper shows that the expected inefficiency of optimally designed mechanisms relative to ex post efficient allocations decreases almost quadratically as the number of traders increases

ex ante efficient ex post individually rational trade abstract consider a bilateral trade model with two sided incomplete information for a general set of independent beliefs an ex post individually rational mechanism generating the same level of ex ante expected gains from trade as an ex ante efficient interim individually rational mechanism is constructed thus imposing the stronger notion of ex post individual rationality on this mechanism design problem generates no loss of efficiency

anticipated monetary policy in a cash in advance economy this paper analyses the effects of perfectly foreseen monetary policy within the framework of a standard cash in advance economy anticipated monetary policy is shown to have real effects by influencing inflationary expectations in a cash in advance economy an increase in the anticipated rate of inflation reduces the return to labour supply and induces a substitution away from time spent in the labour market the paper analyses the implication of this substitution for the time paths of output prices interest rates real and nominal and stock market prices

the transition from bargaining to a competitive market how few traders constitute a bargaining problem or alternatively how many traders constitute a market intuitively people who meet to trade face a bargaining problem if several of them with opposing interests can influence the outcome of trade through their behavior traders constitute a competitive market only if the effect of any trader on the outcome of trade is insignificant analysis of bargaining using noncooperative game theory has been a lively research topic over the past ten years while the formalization of perfectly competitive markets using a continuum of traders is now several decades old in this paper i discuss a line of research that studies the transition between these two theories in particular a result from mark satterthwaite s and my paper 1989b is presented that shows how a bargaining problem is transformed into a market as the number of traders increases incomplete information is an essential feature of the model that i discuss in order to explain how traders achieve a competitive equilibrium it is standard to assume that all potential gains from trade are commonly known at the outset in contrast each trader in the model that i describe privately knows his own preferences a second feature is that a market with any finite number of traders on each side is modeled rather than one with a continuum of traders these two features together make strategic behavior seem especially likely price taking behavior is not an axiom here instead the objective is to prove that a trader s equilibrium behavior is to increasingly act as a price taker as a market grows in size and that only a small number of traders is needed on each side to compel each trader to act in this way though the background of this research will be discussed later in more detail it is basically motivated by the intuition most of us share that a market can work pretty well despite having a relatively small number of traders who strategically act on their private information while the axioms of perfect competition are of course never satisfied in the real world i believe that this theory provides insight not only into immense markets but also into smaller markets the research that i describe is another attempt to substantiate this belief

monetary uncertainty in discrete time utility of money models abstract in a discrete time model higher variability of the future money supply affects current macroeconomic variables when beginning of period money is the argument of utility but not when end of period money is the effect is through the existence of a precautionary money demand

the impact of monetary policy on corporate bonds under regime shifts abstract we study the effects of a conventional monetary expansion quantitative easing and the maturity extension program on corporate bond yields using impulse response functions obtained from flexible models with regimes using a three state markov switching model with time homogeneous vector autoregressive var coefficients that emerges from a systematic model specification search we find that unconventional policies may have been generally expected to decrease both corporate yields and spreads however even though the sign of the responses is the one desired by policymakers the size of the estimated effects depends on the assumptions regarding the decline in long term treasury yields caused by unconventional policies on which considerable uncertainty remains further tests based on yield spreads and a variable that measures inflation expectations show that in the crisis regime unconventional monetary policies do not produce any perverse effects on expected inflation these results prove robust to adopting a framework that allows var coefficients to break to imposing coefficient restrictions that increase parsimony and to a range of different ordering schemes that identify shocks in alternative ways

information percolation in segmented markets we study equilibria of dynamic over the counter markets in which agents are distinguished by their preferences and information over time agents are privately informed by bids and offers investors differ with respect to information quality including initial information precision and also in terms of market connectivity the expected frequency of their bilateral trading opportunities we characterize endogenous information acquisition and show how learning externalities affect information gathering incentives more liquid markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large on the other hand for a small market duration the opposite may occur if agents vary sufficiently in terms of their market connectivity c 2014 published by elsevier inc

monetary growth innovations in a simple cash in advance asset pricing model abstract this paper contributes to the existing literature in the rational expectations cash in advance asset pricing general equilibrium model in two directions first we show that by allowing a variable velocity of circulation an increase in the conditional variance of the money growth process triggers an increase in the demand for money relative to stocks and bonds with a consequent reduction in stock and bond prices which is the opposite of the current result in the literature with constant unitary velocity second we explicitly show how the sequential markets and specific timing of information fits exactly into the notion of irreversibility in the sense that when faced with uncertainty agents might find optimal to delay decisions in order to wait for the arrival of new information

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

the efficiency of linear equilibria of sealed bid double auctions abstract this paper modifies myerson and satterthwaite s j econ theory 29 1983 265 281 analysis of direct bilateral trade mechanisms with two sided incomplete information by developing a new technique for analyzing their payment rule restrictions for each member of a narrow class of beliefs this new technique defines a mechanism that is both ex ante efficient and ex post individually rational moreover the resulting allocation is shown to be equivalent to that generated by the linear equilibrium of a k double auction

inflation wealth and interest rates in an intertemporal optimizing model abstract this paper analyzes the relationship between the growth of the money supply and capital accumulation in a monetary optimizing model under certain conditions we show that a large intertemporal elasticity of substitution makes the nominal rates of interest undershoot its long term value that a low elasticity gives rise to overshooting while a unitary elasticity is shown to make the nominal rate of interest a constant these considerations plus explicit attention paid to the income and substitution effects induced by the changes in the nominal rates of interest provide us with an understanding of the correlation between growth of money and capital accumulation

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

a note on the seller s optimal mechanism in bilateral trade with two sided incomplete information it is shown with an example that in bilateral trade problems with two sided incomplete information some seller types may obtain higher expected payos in mechanisms other than the one where they make a take it or leave it oer contrary to popular belief if one looks at the mechanism selection problem of the informed seller then the op timality of a take it or leave it oer for the seller is restored journal of economic literature classi cation numbers c72 c78 d82

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

equilibria of the sealed bid mechanism for bargaining with incomplete information we study the nash equilibria of the sealed bid bargaining mechanism with incomplete information a nonzero sum game for the case of uniform priors we describe two uncountably numerous families of equilibria the first has differentiable strategies in the second the strategies are step functions the efficiencies of these equilibria range from second best to zero for independent nonuniform priors we show that a similar situation obtains these results seem discouraging with regard to using the sealed bid mechanism in practice the mechanism might be salvaged however if bargainers turn out to confine themselves to linear strategy equilibria

the emergence of equilibrium cycles in a monetary economy with a separable utility function abstract this paper analyzes the dynamic properties of the monetary economy when money held during the period induces some utility it is shown that the price level and real money balances may have chaotic dynamic paths even if the utility function is separable in real money balances and consumption a crucial point is that a constraint on the utility of money yields the wealth effect that inflation will reduce the real value of assets hence as in the overlapping generations model the conflict between substitution and wealth effects may cause globally stable periodic orbits as well as the complicated dynamics

monetary policy in a markov switching vector error correction model monetary policy vector autoregressions vars typically presume stability of the long run outcomes we introduce the possibility of switches in the long run equilibrium in a cointegrated var by allowing both the covariance matrix and weighting matrix in the error correction term to switch we find that monetary policy alternates between sustaining long run growth and disinflationary regimes allowing state changes can also help explain the price puzzle and justify the use of commodity prices as a corrective measure finally we show that regime switching has implications for disinflationary monetary policy and can explain the variety of sacrifice ratio estimates that exist in the literature

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

bargaining and search with incomplete information about outside options abstract this paper considers a model of bargaining in which the seller makes offers and the buyer can search at a cost for an outside option the outside option cannot be credibly communicated and the seller s offer is recallable by the buyer for one period there are essentially two equilibrium regimes for sufficiently high search cost the game ends immediately otherwise the search occurs in equilibrium compared to the case where the buyer can communicate his outside option the seller is worse off and the game results in search for a smaller set of values of the search cost i e less equilibrium delay c72

bilateral matching and bargaining with private information we study equilibria of a dynamic matching and bargaining game dmbg with two sided private information bilateral bargaining the model is a private information replica of mortensen and wright 2002 there are two kinds of frictions time

monetary policy implementation and the federal funds rate this paper investigates how the implementation of monetary policy affects the dynamics and the volatility of the federal funds rate since the early 1980s the most important changes in the fed s conduct of monetary policy refer to the role of the federal funds rate target and the reserve requirement system we show that the improved communication and transparency regarding the federal funds rate target has significantly increased the fed s influence on the federal funds rate since 1994 by contrast the declining role of required reserves in the u s has contributed to higher federal funds rate volatility our results suggest that the planned introduction of remunerated reserves will further enhance the controllability of the federal funds rate

efficiency and disagreement in repeated infinite horizon bargaining games m satterthwaite and s williams 1987 characterize regular equilibria of the sealed bid k double auction that in some cases are efficient the sealed bid k double auction specifies one period of simultaneous offers and requires agents to sometimes disagree at the end of the first period when gains from continued bargaining exist this paper constructs a theory of disagreement based on reputation in repeated bargaining games agents make the offers of a satterthwaite williams regular equilibrium in the first round of a negotiation then if no trade results the agents terminate the negotiation in spite of possible gains from the option of continued bargaining copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

the federal reserve s large scale asset purchase programmes rationale and effects we provide empirical estimates of the effect of large scale asset purchases lsaps on longer term us treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred habitat literature and the duration channel associated with interest rate risk we also clarify lsaps role in the broader context of historical monetary policy strategy results indicate that lsap style operations mainly impact longer term rates via the nominal term premium within that premium the response is predominantly embodied in the real term premium the scarcity and duration channels both seem to be of considerable importance

monetary policy under financial uncertainty abstract monetary policy may play a substantial role in mitigating the effects of financial crises in this paper i suppose that the economy occasionally but infrequently experiences crises where financial variables affect the broader economy i analyze optimal monetary policy under such financial uncertainty where policymakers recognize the possibility of crises optimal monetary policy is affected during the crisis and in normal times as policymakers guard against the possibility of crises in the estimated model this effect is quite small optimal policy does change substantially during a crisis but uncertainty about crises has relatively little effect

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

bilateral trade with the sealed bid k double auction existence and efficiency for k in the unit interval the k double auction determines the terms of trade when a buyer and a seller negotiate transfer of an item the buyer submits a bid b and the seller submits an offer s trade occurs if b exceeds s at price kb 1 k s we model trade as a bayesian game in which each trader privately knows his reservation value but only has beliefs about the other trader s value existence of a multiplicity of equilibria is proven for a class of trader s beliefs for generic beliefs however these equilibria are shown to be ex ante inefficient

the modified vickrey double auction abstract we modify w vickrey s 1961 j finance 16 8 37 mechanism for call markets by introducing the participation stage and study the efficiency properties of the modified mechanism we provide sufficient conditions under which the modified vickrey double auction achieves full efficiency in addition we prove that the modified vickrey double auction achieves asymptotic efficiency even when full efficiency cannot be achieved journal of economic literature classification numbers c72 d44 d82

what does monetary policy do to long term interest rates at the zero lower bound this article uses a structural var with daily data to identify the effects of monetary policy shocks on various longer term interest rates since the federal funds rate has been stuck at the zero lower bound the var is identified using the assumption that monetary policy shocks are heteroskedastic monetary policy shocks have especially high variance on days of fomc meetings and certain speeches while there is otherwise nothing unusual about these days a complementary high frequency event study approach is also used i find that stimulative monetary policy shocks lower treasury and corporate bond yields but the effects die off fairly fast

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

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

on the term structure of interest rates abstract this paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates we undertake both a qualitative and quantitative analysis first we assess the changing shape of the yield curve over the model economy s business cycle and compare our results with what is empirically observed second we employ the model to study various implications of informational and allocative efficiency properties which the artificial economy must possess it is found for example that long term rates are less volatile than short term rates and that holding premia can be highly correlated over time third we study the time varying risk premium implicit in the economy s forward rate structure a purely quantitative assessment of the model s explanatory power is also provided

the term structure of interest rates in real and monetary economies abstract this paper modifies standard asset pricing models by introducing capital a variable labor supply and money a surprising but very positive result is that in a real production economy the interest rate is close to a random walk this result is found to be true even if there is no persistence in the driving process of the model in this paper we generalize the standard cash in advance constraint by using a shopping time technology this generalization makes it possible to match observed variability for the velocity of money this type of monetary model however is not successful in matching observed behavior of bond prices

assessing the economy wide effects of quantitative easing this article examines the macroeconomic impact of the first round of quantitative easing qe by the bank of england we attempt to quantify the effects of these purchases by focusing on the impact of lower long term interest rates on the wider economy we use three different models to estimate the impact of qe on output and inflation a large bayesian vector autoregression var a change point structural var and a time varying parameter var our estimates suggest that qe may have had a peak effect on the level of real gdp of around and a peak effect on annual cpi inflation of about points