currency and credit in a private information economy in an environment with private information spatial separation and limited communication a currency like object and more standard named credits can be distinguished the credit objects can be used among agents in an enduring relationship that is among agents with known trading histories whereas the currency like object must be used among relative strangers in this environment collectively determined pareto optimal rules make the level of the currency like object and the mix of currency to named credits responsive to individual needs and to economywide states total indebtedness is determined by the number of lenders that is by preference or demand shocks and the mix of currency to credits is determined by transaction patterns among the agents

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

the financial crisis and the geography of wealth transfers abstract this paper studies the geography of wealth transfers between 2007q4 and 2008q4 at the height of the global financial crisis we construct valuation changes on bilateral external positions in equity direct investment and portfolio debt to measure who benefited and who lost on their external exposure we find a very diverse set of fortunes governed by the structure of countries external portfolios in particular we are able to relate the gains and losses on debt portfolios to the country s exposure to abs abcp conduits and the extent of dollar shortage

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

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

international portfolios capital accumulation and foreign assets dynamics despite the liberalization of capital ows among oecd countries equity home bias remains sizable we depart from the two familiar explanations of equity home bias transaction costs that impede international diversi cation and terms of trade responses to supply shocks that provide risk sharing so that there is little incentive to hold diversi ed portfolios we show that the interaction of the following ingredients generates a realistic equity home bias capital accumulation shocks to the e ciency of physical investment as well as international trade in stocks and bonds in our model domestic stocks are used to hedge uctuations in local wage income terms of trade risk is hedged using bonds denominated in local goods and in foreign goods in contrast to related models the low level of international diversi cation does not depend on strongly countercyclical terms of trade the model also reproduces the cyclical dynamics of foreign asset positions and of international capital ows

the demise of hospital philanthropy the demise of hospital philanthropy i introduction until the beginning of this century most hospitals primarily served the poor and derived a major portion of their revenue from private philanthropy the more affluent avoided hospital care and were treated in doctors offices and at home starr 1982 rosenberg 1987 this situation changed largely because of technological improvements such as anesthesia and asepsis and the nonpoor began to demand care in hospitals private insurance plans offering the nonpoor nearly complete coverage for hospital care began in the 1930s and spread rapidly after world war ii major health legislation medicare and medicaid was enacted in 1965 extending hospital insurance to the elderly and the poor by the late 1960s hospitals derived nine tenths of their revenue from insurance real donations for medical facility construction rose from 76 million in 1935 to a peak of 2 1 billion in 1965 and fell to 603 million by 1981 1984 dollars 1 in 1984 only 5 percent of the total spent on such construction was funded by philanthropy levit et al 1985 the conventional wisdom has it that private and public hospital insurance has crowded out philanthropic support of hospitals the public insurance argument is consistent with that of abrams and schmitz 1978 and roberts 1984 who maintain that public welfare expenditures reduce or eliminate private giving to the poor this argument appears to extend to private insurance as well this article describes the decline in donations to hospitals from conceptual as well as empirical perspectives we first describe a simple one period model of hospital and donor behavior hospitals choose utility maximizing levels of output while altruistic donors decide how much to contribute to hospitals and how much to spend on other goods the model is used to analyze how insurance various government subsidies and other factors affect hospital and donor behavior the major insight from this model is that although rising insurance coverage tends to increase hospital output in the same way as a lump sum government subsidy the two have different effects on donations to the hospital growing insurance coverage may increase or decrease donations while lump sum subsidies to the hospital will unambiguously crowd out private donations the empirical work following the model incorporates empirical counterparts of the exogenous and donation variables examined in the theoretical section data come from 1 a time series spanning 1935 81 and 2 a single cross section of nonprofit hospitals in 1978 the results indicate that increased insurance coverage for hospital care especially the enactment of medicare and medicaid in the mid 1960s reduced giving to hospitals the contribution of public subsidies for construction varied depending on whether the subsidy more closely resembled a matching or a lump sum subsidy ii model the model consists of a single not for profit hospital and a single representative donor 2 the hospital chooses output n to maximize its utility from output 3 while the donor chooses donations d to maximize utility from total hospital output and other goods y the donor behaves altruistically in that he does not use hospitals himself the behavior of hospital patients is not explicitly modeled although their presence will be felt the output and donation decisions are interrelated since the donor likes hospital output and the level of donations affects the hospital s budge get constraint to untangle the endogenous feedback effects between output and donations the problem is described as a two stage sequential game in the first stage the donor decides how much to donate in the second stage the hospital chooses how much output to produce given the previously determined level of donation of course the donor is acutely aware that the hospital s subsequent output decision will affect his utility

a model in which monetary policy is about money abstract optimal monetary policy is studied in a model with i heterogeneity in the degree to which different people are monitored have publicly known histories ii idiosyncratic shocks that give rise to heterogeneity in earning and spending realizations and iii central bank intervention in a market in claims or credit in which the participants are those who are heavily monitored a special case of the model has everyone perfectly monitored in that case there is no role for money and no role for central bank intervention in the example displayed with imperfect monitoring optimal intervention is not simple

debt investment and endowment accumulation the case of not for profit hospitals abstract not for profit hospitals benefit from special tax rules that allow state authorities to issue tax exempt bonds on their behalf which may affect their investment and financing choices hospitals may respond by increasing their investment in physical assets however they may also engage in tax arbitrage by using the tax exempt debt while maintaining endowment assets the paper combines data from tax information returns and the annual survey of hospitals by the american hospital association for 1993 1996 overall the results are consistent with substantial tax planning by not for profit hospitals of the us 55 9 billion in tax exempt liabilities of hospitals in 1996 as much as us 32 6 billion could have been eliminated if hospitals spent their endowments instead of borrowing furthermore controlling for hospital size in terms of revenues and operating assets endowment assets are associated with a higher ratio of tax exempt or total debt to operating assets in contrast endowment assets are not related to taxable debt suggesting that the effects of the endowment on borrowing are motivated by tax incentives investment and endowment accumulation regressions suggest that increases in debt increase both physical investment and endowment accumulation but these effects are concentrated among cash rich hospitals for which the effects on endowment accumulation effects are larger than the effects on physical investment

ideals versus dollars donors charity managers and government grants this paper demonstrates how changes in untied lump sum government grants or income from unrestricted endowments will affect the behavior of charities operated by managers with strong philosophical or professional commitments an increase in such funds will reduce the charity s accountability to private donors and lower its fund raising activities the grant will not be spent entirely on raising the quantity of output instead it will permit the charity manager to reduce his or her dependence on the costly solicitation of donors who do not completely share the manager s preferences in order to understand nonprofit charities one must recognize both their diversity and the independent role of their managers in furthering this diversity we will miss much of their special character if we view them as mere conduits seeking faithfully to reify the wishes of their contributors in this paper i demonstrate how an increase or a fall in untied lump sum government grants or income from unrestricted endowments will affect the behavior of charities operated by managers with strong philosophical or professional commitments to some service mixes rather than others an increase in such funds will reduce the charity s accountability to private donors and lower its fund raising activities the grant will not be spent entirely on raising

on the essentiality of banks we compare allocations sustained by credit with allocations sustained by bank notes inside money in a search model with decentralized trade and limited monitoring we demonstrate that there exists a credit arrangement that is superior to inside money however in contrast with inside money this arrangement is not robust to an expansion of trade that is not accompanied by an adequate increase in the degree of monitoring therefore banks are essential when trade is intense and monitoring is limited as a historical application we argue that our model helps explain the origins of banking in medieval and early modern europe

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

external imbalances in the eurozone the paper examines the extent to which current account imbalances of euro area countries are related to intra euro area factors and to external trade shocks we argue that the traditional explanations for the rising imbalances are correct but are incomplete we uncover a large impact of declines in export competitiveness and asymmetric trade developments vis a vis the rest of the world x96 in particular vis a vis china central and eastern europe and oil exporters x96 on the external balance of euro area debtor countries while current account imbalances of euro area deficit countries vis a vis the rest of the world increased they were financed mostly by intra euro area capital inflows in particular by the purchase of government and financial institutions securities and cross border interbank lending which permitted external imbalances to grow over time ruo chen gian maria milesi ferretti and thierry tressel

an accurate measurement of the crowd out effect income effect and price effect for charitable contributions in the past empirical research on charitable contributions has focused on two issues estimating the income and price elasticities of contributions and estimating the extent to which government funding crowded out private contributions the two fundamental problems in all these studies are the differences in the underlying conceptual models and the use of imperfect data for empirical analysis this paper addresses both of these problems

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

current accounts and financial flows in the euro area abstract we construct a new database of bilateral financial flows among euro area countries and their major world partners and explore the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area the data show that the geography of financial flows can differ quite markedly from trade flow patterns and suggest that the nexus between surpluses in the core with deficits in the periphery went along financial rather than trade interlinkages in particular the data document the dominant role of core countries in financing the euro area periphery s current account deficits before the financial crisis both directly and through intermediating financial flows from outside of the euro area most of this financing took the form of debt instruments following the withdrawal of private financing from core countries during the crisis the ecb mediated funding and other official flows helped the periphery to refinance its liabilities and smoothen the external adjustment

tax exempt debt and the capital structure of nonprofit organizations an application to hospitals the availability of tax exempt financing provides nonprofit np organizations with their own tax based incentives to issue debt in this article we develop a theoretical model in which nps gain an indirect arbitrage from tax exempt debt issuance constrained by 1 the requirement that fixed investment exceed tax exempt debt flows the project financing constraint and 2 the constraint against share issuance these constraints cause them to impute tax benefits to projects that afford access to the tax exempt bond market empirical tests indicate that np hospitals behave as if they have target levels of tax exempt debt debt targeting is constrained by the availability of capital projects while excess debt capacity stimulates investment financial theorists have generally been reluctant to apply the tenets of corporate finance to nonprofit institutions in particular there has been little or no follow up to the important work of fama and jensen on the relationships between agency contracting and ownership written over a decade ago current understanding of the financial basis and behaviors of nonprofit institutions is limited to three basic insights provided by their prior work 1 the attenuation of residual claims characteristic of nonprofit organizations addresses the agency problems associated with private donations fama and jensen 1983b 2 like other organizations nonprofits require decision systems that separate the processes of management and control fama and jensen 1983a and 3 given certain preconditions investment opportunities available to nonprofits can be evaluated with the net present value rule using discount rates defined by outside capital markets fama and jensen 1985 these observations comprise much of what is currently known about nonprofit corporate financial behavior foremost among the set of unresolved issues is the theory of debt issuance by nonprofits an area not explicitly addressed by the fama and jensen

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

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

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

profit variability in for profit and not for profit hospitals this paper proposes two tests of the hypothesis that not for profit hospitals nfps behave differently than for profit hospitals the profit variability test states that the profits of an nfp will be less variable over time than profits of a for profit hospital if the nfp maximizes utility subject to a profit constraint the second test examines whether nfp profits respond less to change in exogenous factors such as medicare reimbursement rates than profits of for profit hospitals both tests performed on panel data from 1983 to 1988 support the hypothesis that nfps behave differently than for profit hospitals

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

an overlapping generations model with search abstract search is embedded in an overlapping generations model the young participate in a centralized market and then are matched in pairs in a decentralized market the old only participate in the centralized market if the buyer s bargaining power in pairwise trade is close to unity and if the old are risk averse then the golden rule rate of money transfer is positive such risk aversion the pairwise meetings and dependence of the young s saving on the rate of return are necessary for this result

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

asset trading mechanisms and expansionary policy abstract previous authors have argued that the otimal monetary policy is contractionary if buyers value consumption substantially more than sellers there is some randomness and informational constraints make asset trading useful we show that there is an incentive compatible expansionary policy that dominates all incentive compatible contractionary policies

indivisibilities lotteries and monetary exchange we introduce lotteries randomized trading into search theoretic models of money in a model with indivisible goods and fiat money we show goods trade with probability 1 and money trades with probability where 1 iff buyers have sufficient bargaining power with divisible goods a nonrandom quantity q trades with probability 1 and again money trades with probability where 1 iff buyers have sufficient bargaining power moreover q never exceeds the efficient quantity not true without lotteries we consider several extensions designed to get commodities as well as money to trade with probability less than 1 and to illuminate the efficiency role of lotteries