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

screening and signaling in communication in this paper we analyze a model of repeated strategic communication between a sender and a receiver the sender has private information on a policy relevant variable but does not know the receiver s motives together with the desire of the sender to please the receiver and the desire of the receiver to be pleased the two sided incomplete information creates an interesting communication problem in which players can choose to use information strategically we analyze various modes of communication which allow for information transmission and we compare them in terms of both the quality of the policy implemented and the welfare of the players

how investible is bitcoin analyzing the liquidity and transaction costs of bitcoin markets abstract we examine the investibility of bitcoin by exploring the trading dynamics and market microstructure of bitcoin on three us cryptocurrency exchanges using high frequency intraday data of individual trades and quotes although all exchanges offer continuous trading we find that the highest trading activity highest volatility and lowest spreads coincide with us market trading hours suggesting that most trades are non algorithmic and executed by retail investors we further find that average quoted and effective spreads for bitcoin are lower than spreads on major equity exchanges implying that bitcoin is highly investible for retail size transactions

the nonlinear time series properties of unemployment rates some further evidence the time series properties of unemployment rates for germany japan the uk and the us are re examined evidence of nonlinear structure in the residuals of the most parsimonious linear arma models is reported for all countries except japan modelling this nonlinearity using setar models suggests strong asymmetry in unemployment dynamics and the presence of a possible limit cycle for the uk however residual diagnostics for these models indicate remaining structure alternative tar models conditioned on past growth rates of industrial production yield substantial reductions in residual variance over both linear and setar counterparts iid residuals in all cases other than the us and threshold values at or very near zero clearly identifying the asymmetric behaviour of unemployment during expansionary and contractionary phases of the business cycle

choosing sides in matching games nash equilibria and comparative statics this paper characterizes equilibria in matching games where the institutional setting allows players to choose whether to become buyers sellers or not to participate in economic activity nash equilibrium consists of a partition of agents into buyers sellers and non participants such that agents in each group do not have an incentive to change their activity given the behaviour of other agents comparative static analysis demonstrates that when participation costs are so high that some agents choose not to participate a further increase in participation costs may increase the number of agents who participate in the matching process

tips from tips the informational content of treasury inflation protected security prices treasury inflation protected securities tips are frequently thought of as risk free real bonds using no arbitrage term structure models we show that tips yields exceeded risk free real yields by as much as 100 basis points when tips were first issued and up to 300 basis points during the 2007 2008 financial crisis this spread predominantly reflects the poorer liquidity of tips relative to nominal treasury securities other factors including the indexation lag and the embedded deflation protection in tips play a much smaller role ignoring this spread also significantly distorts the informational content of tips break even inflation a widely used proxy for expected inflation

anonymous markets and monetary trading abstract we study infinite horizon monetary economies characterized by trading frictions that originate from random pairwise meetings and commitment and enforcement limitations we prove that introducing occasional trade in centralized markets opens the door to an informal enforcement scheme that sustains a non monetary efficient allocation all is required is that trading partners be patient and their actions be observable we then present a matching environment in which trade may occur in large markets and yet agents trading paths cross at most once this allows the construction of models in which infinitely lived agents trade in competitive markets where money plays an essential role

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

money and loans agents expect to trade with each other infinitely often but face a temporal absence of a coincidence of wants when they meet only loans and or money can facilitate exchange in small close knit economies enduring trade relationships are valued and loans are optimal in larger economies with limited communication information concerning repayment of loans diffuses too slowly to deter agents from reneging unless loans are severely restricted in magnitude money has no such redeemability problems but if clower constraints bind loans help supplement money purchases so that both become essential roles of various institutions and the historical evolution of media of exchange are explained

reemployment probabilities and returns to matching the assumption of constant returns in the matching function embodied in most bilateral search models is crucial to ensure the uniqueness of the unemployment rate along a steady state growth path this article explores the empirical viability of this assumption by estimating individual reemployment probabilities on a sample of unemployment entrants i apply hazard models to survey data on both completed and uncompleted unemployment durations the hypothesis of constant returns to matching is not rejected on the basis of the evidence that the job finding hazard depends only on local labor market tightness and is independent of its size

the effects of firm optimizing behaviour in matching models this paper considers a matching model of which the search behaviour of jovanovic 1979 and albrecht and jovanovic 1984 are special cases the nature of the generality is that each unemployed worker has more information than firms about his average productivity this results in wage offers falling over the length of an unemployment spell because a long spell is a signal of lower than average productivity the results of the paper are similar to the scarring effect of heckman and borjas 1980 and greenwald 1986 and the discouraged worker effect of schweitzer and smith 1974

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

threshold nonlinearities in unemployment rates further evidence for the uk and g3 economies the paper appraises the in sample and out of sample adequacy of linear ar and nonlinear setar models of unemployment rates for germany japan the uk and the us tests are reported for the presence and specification of threshold nonlinearities setar model estimates limiting dynamic properties and residual diagnostics and out of sample forecasting performance in sample threshold non linearities are confirmed to be strongly present for the uk us and germany and more marginally so for japan out of sample excepting japan setar models provide superior onestep ahead forecast on rmse grounds most notably for the us final tests indicate that these models exhibit predictive accuracy in the sense of parameter and residual variance stability implying the potential for exploitation of such nonlinearity in official forecasting

on the future of macroeconomics a new monetarist perspective this article argues that a pressing goal for macroeconomics is to incorporate financial considerations but we need models with solid microfoundations in particular the use of assets in facilitating exchange as well as different credit or other financial arrangements should be outcomes of not inputs to theories as a preview i suggest that mainstream macro does a good job explaining many phenomena and a financial crisis does not disprove such theory but understanding crises requires better incorporating factors related to money credit banking and liquidity the approach called new monetarist economics can help a lot in this regard

currencies and the allocation of risk the welfare effects of a monetary union in a general equilibrium model with incomplete asset markets nominal securities and mean variance preferences a monetary union is desirable when the gain from eliminating excess volatility of nominal variables exceeds the cost of reducing the number of currencies with which to hedge risks copyright 1998 by american economic association

the structure of simple general equilibrium models with frictional unemployment we develop a two sector general equilibrium model in which equilibrium unemployment arises endogenously because of trading frictions in the labor market of one sector externalities inherent in the search process lead to inefficient equilibria and this has important implication for the basic structure of the economy in particular the relationship between factor rewards and commodity prices is fundamentally different from the analogous relationship in a frictionless economy one implication is that the economy s relative supply curve may be downward sloping especially when the search sector is small we also present several applications of the analysis

consolidation fragmentation and market performance this paper studies the impact of market consolidation or fragmentation on its performance examining four alternative models of exchange a consolidated clearing house fragmented clearing houses a monopoly dealer market and an interdealer market the effects of the market mechanism on the expected quantity traded the price variance faced by individual traders the quality of market price signals the expected gains from trade and the exchange implementation costs are studied

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

search evolution and money abstract this paper describes a search theoretic model that can be used to determine which objects serve as media of exchange or money existing versions of the model are generalized to allow arbitrary distributions of agents who specialize in different consumption production activities i characterize the way the numbers of consumers and producers of the various goods help determine which goods serve as money the distribution is then endogenized so that agents can choose their type this generates a unique equilibrium outcome ideas from evolutionary dynamics are employed as a way to interpret the model and to compute equilibria

inflation indexed bonds and nominal bonds financial innovation and precautionary motives this paper introduces a two period monetary general equilibrium model with proportional transaction costs on nominal and inflation indexed bonds this paper demonstrates that financial innovation on indexed bonds causes equilibrium interest rates of the nominal bond to increase when agents have precautionary saving motives this result implies that ignoring precautionary motives would underestimate savers welfare gain and overestimate borrowers welfare gain from innovation on indexed bonds

inflation expectations real rates and risk premia evidence from inflation swaps this paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short term real interest rate expected inflation inflation s central tendency and four volatility factors that follow garch processes we derive analytical solutions for nominal bond yields yields on inflation indexed bonds that have an indexation lag and the term structure of expected inflation unlike prior studies the model s parameters are estimated using data on inflation swap rates as well as nominal yields and survey forecasts of inflation the volatility state variables fully determine bonds time varying risk premia and allow for stochastic volatility and correlation between bond yields yet they have small effects on the cross section of nominal yields allowing for time varying volatility is particularly important for real interest rate and expected inflation processes but long horizon real and inflation risk premia are relatively stable

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

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

learning matching and growth we examine an endogenous growth model in which market frictions are an integral part of the economic environment workers invest in education when young which raises their productivity onice employed the level of schooling also acts as a key determinant of the rate of economic growth by influencing workers ability to accumulate additional human capital on the job once schooling is completed workers search for employment the division of the surplus between vacancies and searching workers is characterized as is the optimal level of education the economy may display multiple steady state growth paths

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

inflation and unemployment in general equilibrium when labor is indivisible there exist ecient outcomes with some agents randomly unemployed rogerson 1988 we integrate this idea into the modern theory of monetary exchange where some trade occurs in centralized markets and some in decentralized markets as in lagos and wright 2006 this delivers a general equilibrium model of unemployment and money with explicit microeconomic foundations we show the implied relation between inflation and unemployment can be positive or negative depending on simple preference conditions our phillips curve provides a long run exploitable trade o for monetary policy it turns out however that the optimal policy is the friedman rule

a dynamic model of trade frictions and disequilibrium in the housing market a dynamic stock flow model is developed to analyze and simulate housing markets with partial rent control trade frictions and spillovers a notion of equilibrium is suggested and related to walrasian equilibrium existence uniqueness and comparative statics properties of equilibria are analyzed in some examples of housing markets with and without price control stability properties and dynamic responses to demand and supply shocks are studied by means of computer simulations in a final simulation experiment a black market for rent controlled dwelling units is introduced

welfare effects of financial innovation in incomplete markets economies with several consumption goods abstract we show that in almost every incomplete markets economy with more than one consumption good and with sufficiently many uninsured states of nature at any general equilibrium of this economy it is possible to arbitrarily perturb the equilibrium utilities merely by introducing the appropriate asset making for example all agents worse off this result demonstrates that the examples given by hart on the optimality of equilibrium when the market structure is incomplete j econ theory11 1975 418 443 and others are actually general phenomena and is in sharp contrast to the intuition that innovation since it expands financial opportunities should benefit all agents journal of economic literature classification numbers d52 d60 g10

viewpoint a microfoundation of monetary economics in this lecture i explain what the microfoundations of money are about and why they are necessary for monetary economics then i review recent developments of a particular microfoundation of money commonly known as the search theory of money finally i outline some unresolved issues dans cette presentation l auteur explique ce que sont les microfondations de la monnaie et pourquoi elles sont necessaires a l economie monetaire ensuite il passe en revue certains developpements recents d une microfondation particuliere de la monnaie connue sous le nom de theorie de la recherche de la monnaie enfin l auteur fait le tour d un ensemble de problemes qui restent sans solution pour le moment

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

centralised order books versus hybrid order books a paired comparison of trading costs on nsc euronext paris and sets london stock exchange this article compares the cost of trading large capitalisation equities on the hybrid order driven segment of the london stock exchange and the centralised electronic order book of euronext using samples of stocks matched according to economic sector free float capitalisation and trading volume our study shows that transaction costs are lower on the centralised order book than on the hybrid order book the presence of dealers outside the electronic order book favours the frequency of large trades but is associated with higher execution costs for all other trades and higher adverse selection and inventory costs inside the order book

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

trading uncertainty and market form this paper examines purely random multilateral matching among a large number of informationally isolated individuals who desire to trade the structure of links among traders is characterized by means of random graphs defined by a parameter that is chosen by prospective traders trading groups of all sizes including pairs as a special case result but the size distribution may contain a mass point at infinity that is within a certain subset of the entire economy trading uncertainty is entirely eliminated the equilibrium price distribution consists of a mass point and of a mixture of densities copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

a theory of yes men this paper illustrates an incentive for workers to conform to the opinion of their supervisors when firms use subjective performance evaluation this desire to conform arises endogenously from the firm s need to induce the worker to exert effort the author shows that firms may optimally eschew the use of incentive contracts to retain workers incentives for honesty the author illustrates that the incentive to conform implies inefficiencies even when workers are risk neutral and is likely to lead to more centralized decision making than in the absence of the desire to conform copyright 1993 by american economic association

liquidity monetary policy and the financial crisis a new monetarist approach a model of public and private liquidity integrates financial intermediation theory with a new monetarist monetary framework nonpassive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the friedman rule a liquidity trap can exist in equilibrium away from the friedman rule and there exists a permanent nonneutrality of money driven by an illiquidity effect financial frictions can produce a financial crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income jel e13 e44 e52 e62 g01 liquidity is a class of assets that is useful in exchange some of these liquid assets are government liabilities federal reserve notes treasury bills and treasury notes some are private liabilities the deposit liabilities of banks and some asset backed securities for example conventional wisdom holds that the main role of a central bank is to manage public liquidity in a manner that controls inflation and enhances the provision of private liquidity and credit however the mechanism by which central bank actions work to perform this role still appears to be poorly understood as has been highlighted by the financial crisis and the ensuing policy responses the purpose of this paper is to build a model of public and private liquidity that captures the features of modern economies essential to the analysis of monetary policy and that can be used to shed light on some current monetary policy problems and questions what is a liquid asset and what roles do privately provided and publicly provided liquid assets play in exchange in a model where we capture these roles for liquid assets what are the implications for monetary policy under what circumstances can a liquidity trap occur how does monetary policy work when there is a positive quantity of excess reserves held by banks what does a financial crisis do to the supply of private liquidity and what should monetary policy do in response

search for a theory of organized crimes abstract casual empirical observations reveal no systematic relationship between the overall crime rate and organized criminal activity we develop a search theoretic framework to study the interactions not only between formal labor and crime sectors but also between individual and organized crimes in equilibrium individual and organized criminals face different arrest risks success rates reward structures and outside options we characterize agents occupational choices the gang s hierarchical structure and the responses of unemployment crime rates and crime composition to changes in labor market conditions and crime deterrence policies we further assess the effectiveness of arrest versus punishment policies in deterring individual and organized crimes

does risk sharing motivate interdealer trading we use unique data from the london stock exchange to test whether interdealer trade facilitates inventory risk sharing among dealers we develop a methodology that focuses on periods of extreme inventories inventory cycles we further distinguish between inventory cycles that are unanticipated and those that are anticipated because of worked orders the pattern of interdealer trade during inventory cycles matches theoretical predictions for the direction of trade and the inventories of trade counterparts we also show that london dealers receive higher trading revenues for taking larger positions

asset liquidity and indivisibility abstract we study asset liquidity in a search theoretic framework where divisible assets can facilitate exchange for an indivisible consumption good the distinctive characteristics of our theory are that the asset dividend can be either positive or negative and buyers can choose whether or not to carry the asset and trade for the indivisible good buyers participation determines the demand for asset liquidity thus the asset price carries a liquidity premium component which reflects the function of the asset in facilitating trade the economy features multiple equilibria when the asset dividend is negative due to the trade off between the probability of trade and the endogenous cost of holding assets

commitment advertising and efficiency of two sided investment in competitive search equilibrium abstract competitive search entails both commitment to and advertising of pay off relevant aspects of market participants this paper considers incrementally the implications of each in a labor market where both workers and firms invest prior to market entry a wide range of institutional arrangements are addressed within the same general framework when the characteristics of jobs or workers are advertised the efficient outcome pertains commitment without advertising typically leads to market unravelling the diamond paradox but whenever wages and human capital are advertised firms become residual claimants the private and social returns to investment coincide absent wage commitment the hosios condition implies efficiency when investments are advertised

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

the welfare gain from the introduction of indexed bonds i examine the welfare gain from the introduction of indexed bonds in zero net supply i show that trade in indexed bonds enables investors to reallocate existing economic risks in a mutually beneficial manner the aggregate gain from the introduction of a safe asset is proportional to the variance of the minimum variance portfolio formed from the risky assets and to the heterogeneity of investors risk preferences in an economy with nominal but not indexed bonds the welfare loss from inflation uncertainty is lowest when inflation is most closely correlated with real returns on other assets contrary to popular intuition the introduction of indexed bonds may reduce saving copyright 1993 by ohio state university press

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

inflation expectations and risk premiums in an arbitrage free model of nominal and real bond yields differences between yields on comparable maturity u s treasury nominal and real debt the so called breakeven inflation bei rates are widely used indicators of inflation expectations however better measures of inflation expectations could be obtained by subtracting inflation risk premiums from the bei rates we provide such decompositions using an estimated affine arbitrage free model of the term structure that captures the pricing of both nominal and real treasury securities our empirical results suggest that long term inflation expectations have been well anchored over the past few years and inflation risk premiums although volatile have been close to zero on average

on the welfare properties of fractional reserve banking monetary economists have long recognized a tension between the benefits of fractional reserve banking such as the ability to undertake more profitable long term investment opportunities and the difficulties associated with it such as the risk of insolvency for each bank and the associated losses to bank liability holders i show that a specific banking arrangement a joint liability scheme provides an effective mechanism for ensuring the ex post transfer of reserves from liquid banks to illiquid banks so it is possible to select a socially efficient reserve ratio in the banking system that preserves the safety of bank liabilities as a store of value and maximizes the rate of return paid to bank liability holders

the total cost of trading belgian shares brussels versus london abstract since 1990 london s seaq international seaq i has attracted considerable trading volume in belgian equities this paper investigates competition between the brussels cats market and london s seaq i toward this end we gathered extensive limit order book data as well as transactions and quotation information with regard to liquidity indirect costs measured by the quoted and effective bid ask spread the paper concludes that cats outperforms seaq international for both measures the effective spread is of course substantially smaller than the quoted spread with the cats effective spread showing a u shaped form this paper unique in employing an extensive data set that includes all hidden orders and the whole limit order book produces results in line with the different market microstructure models total trading costs on cats are lower higher for small large trade sizes

the cost of institutional equity trades presented are an overview of the findings from the recent literature on the cost of u s equity trades for institutional investors and new evidence on trading costs from a large sample of institutional trades the findings discussed have important implications for policymakers and investors implicit trading costs are economically significant equity trading costs vary considerably and vary systematically with trade difficulty and order placement strategy and whether a trade price represents best execution depends on detailed data for the trade s entire order submission process especially information on pretrade decision variables such as the trading horizon

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

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

competition in financial innovation this paper examines the incentives to innovate securities provided by frictionless competitive markets with short sales to entrepreneurs in economies with symmetric investor utilities we provide the conditions under which a rm s market value is maximized by a complete nancial structure that is when the mechanism that gives rise to market incompleteness is the one illustrated in the classical example of allen and gale 1991 the foundation for incompleteness in that case is derived from innovation costs and free riding among entrepreneurs for the class of preferences where an incomplete nancial structure maximizes the rms market values markets are incomplete with a probability of one even when innovation is cost free in this sense we provide an alternative to allen and gale s foundation for market incompleteness

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

strategic communication with lying costs i study a model of strategic communication between an uninformed receiver and an informed but upwardly biased sender the sender bears a cost of lying or more broadly of misrepresenting his private information the main results show that inflated language naturally arises in this environment where the sender almost always claims to be of a higher type than he would with complete information regardless of the intensity of lying cost there is incomplete separation with some pooling on the highest messages the degree of language inflation and how much information is revealed depend upon the intensity of lying cost the analysis delivers a framework to span a class of cheap talk and verifiable disclosure games unifying the polar predictions they make under large conflicts of interest i use the model to discuss how the degree of manipulability of information can affect the trade off between delegation and communication copyright 2009 wiley blackwell

essential interest bearing money i examine optimal monetary policy in a lagos and wright a unified framework for monetary theory and policy analysis j polit econ 113 2005 463 484 model where trade is centralized and all exchange is voluntary i identify a class of incentivefeasible policies that improve welfare beyond what is achievable with zero intervention any policy in this class necessarily entails a non negative inflation rate and a strictly positive nominal interest rate despite the absence of a lump sum tax instrument there exists an incentive feasible policy that implements the first best allocation

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