scarce collateral the term premium and quantitative easing abstract a model of money credit and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium an upward sloping nominal yield curve purchases of long maturity government debt by the central bank are always a good idea but for unconventional reasons a floor system is preferred to a channel system as a floor system permits welfare improving asset purchases by the central bank

robustly coalition proof incentive mechanisms for public good provision are voting mechanisms and vice versa we study the relation between mechanism design and voting in public good provision if incentive mechanisms must satisfy conditions of robust coalition proofness as well as robust incentive compatibility the participants contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another for a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold with more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants willingness to pay the article thus provides a foundation for the use of voting mechanisms

understanding the macroeconomic impact of illiquidity shocks in the united states in this paper we empirically investigate the role of stock market illiquidity shocks stemming from amihud s illiquidity measure in explaining u s macroeconomic fluctuations from 1973 to 2018 we find that the impact of illiquidity shocks on economic activity is substantial and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the great recession moreover our identified illiquidity shocks represent a distinct source of macroeconomic instability this suggests that illiquidity shocks measured by the stock price impacts may contain more information than other types of shocks in recent studies such as financial shocks and uncertainty shocks jel c32 e32

why did male pension coverage decline in the 1980s this analysis of 1979 and 1988 may current population survey data suggests explanations for why male pension coverage declined during the 1980s and why the decline was particularly pronounced among young workers during the 1980s employment shifted toward jobs with lower pension coverage and this shift was more pronounced among young workers than among older workers more important than the reduction in the percentage of workers offered pensions however was reduced participation in pension plans one factor contributing importantly to declining participation rates was the growing share of pensions that were 401 k plans under such plans participation is more voluntary than it is under other plans and young workers are more likely than older workers to decline to participate

a simple solution to the identification problem in detailed wage decompositions i introduction oaxaca and ransom 1999 show that the oaxaca decomposition suffers from one nagging conceptual problem the detailed oaxaca decomposition of wage differentials is not invariant to the choice of reference group when dummy variables are used 1 that is if one uses dummy variable s then the detailed coefficients effect attributed to dummy variables is not invariant to the choice of the omitted group s 2 this invariance or identification problem is well known to labor economists and has plagued decomposition and discrimination analysis for a long time 3 this article proposes a simple and practical solution to this identification invariance problem the solution is based on the intuitive idea that if alternative reference groups yield different estimates of the characteristics and coefficients effects for each individual variable then it is natural to obtain estimates of the two effects for every possible specification of the reference groups and take the average of the estimates of the two effects with various reference groups as the true contributions of individual variables to wage differentials a close inspection shows that averaging the two effects in the decomposition equation with varying reference groups the averaging approach is equivalent to finding average estimates of constant and dummy variables in wage equations with varying reference groups and then using the average estimates to calculate the oaxaca decomposition equation researchers may react a bit negatively to this suggestion because it could be quite cumbersome and tedious to estimate wage equations permuting the choice of reference groups this article shows that there is no need to estimate multiple wage equations one set of regression estimates is sufficient to resolve the identification problem in the detailed decompositions that is the average of the estimates with varying reference groups can be easily calculated by using only one set of regression estimates with any specific reference group s the identification problem for the detailed decomposition disappears once the contribution of the dummy variables and the constant in the regression equations are identified 4 ii identification problem and invariant decomposition an illustration to understand what the identification problem in the detailed wage decomposition is i will first illustrate the problem with a simple example suppose that there are three categories and the regression equation has only a constant and two dummy variables on the right hand side where the reference group is the first category 5 that is 1 y sub i alpha sub i 3 summation over k 2 d sub ki beta sub ki e sub i where y is log wages and i a or b for two comparison groups coefficients for two dummy variables taking category one as the reference group are estimated using ordinary least squares ols regression and are reported in the second column of table 1 for sample a and for sample b note that the coefficient of the reference group category 1 is restricted to zero similarly i may change my reference group specification and estimate the wage equation two more times the estimates taking category 2 or 3 as the reference group are reported on the next two columns because i have three sets of estimates with varying reference groups i may decompose the wage differentials 0 15 0 76 0 61 into characteristics and coefficients effects three times the characteristics effect delta sub x 1 and coefficients effects delta sub beta 1 are specified as follows when category 1 is the reference group delta sub x 1 summation sup 3 sub k 2 bar d sub ka bar d sub kb beta sub kb and delta sub beta 1 alpha sub a alpha sub b summation sup 3 sub k 2 bar d sub ka beta sub ka beta sub kb

structural and market predictors of corporate labor relations strategies the authors develop a model predicting which of three broad labor relations strategies union avoidance union management collaboration or a mixed strategy combining elements of union avoidance and

money and collateral this paper presents a model in which money and collateral are both essential and complement each other as media of exchange the model has implications for asset prices output in ation and monetary policy both in steady state and

monetary policy and asset prices a mechanism design approach we investigate the eects of monetary policy on asset prices in economies where assets are traded periodically in over the counter otc markets with bilateral meetings between buyers and sellers the trading mechanism in pairwise meetings is designed to maximize social welfare taking as given the frictions in the environment e g lack of commitment and limited enforcement and monetary policy we show that asset price bubbles emerge in a constrained e cient monetary equilibrium only if liquidity is abundant and the rst best allocation is implementable in contrast if liquidity is scarce assets are priced at their fundamental value in any constrained e cient monetary equilibrium in which case an increase in in ation has no eect on asset prices but it reduces output and welfare finally for low in ation rates the bursting of an asset price bubble can be an optimal response to a shock that reduces assets resalability

2002 lawrence r klein lecture liquidity and asset prices we broadly define liquid assets or monetary assets as any asset that can be readily sold in the market and can be held by a number of people in succession before maturity we ask in what environment is the circulation of liquid assets essential for the smooth running of the economy by developing a canonical model of a monetary economy i e where the circulation of liquid assets is essential we are able to examine the interaction between liquidity asset prices and aggregate economic activity

money and asset prices with uninsurable risks abstract we present a theory of differences of liquidity across assets based on an endogenous ranking of assets as media of exchange arising from their relative quality as hedging devices when assets have two distinct roles as intertemporal media of exchange and hedging devices buyers have generically a strict preference for paying sellers with the asset which is the relative better hedging device for sellers the consequence of this preference is that there are three monetary policy regimes and these regimes differ in which assets serve as media of exchange whether assets carry a liquidity premium and in the impact that monetary policy has on asset prices

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

payments and liquidity under adverse selection informational asymmetries regarding the future value of assets affect their role in exchange i construct a random matching economy composed of two assets a risk free bond and a lucas tree whose terminal value is privately known to its holder no restrictions are imposed on payment arrangements the main finding supports a pecking order theory of payments agents use their risk free bonds first in order to finance their spending shocks and they use their information sensitive assets only if their holdings of bonds are depleted the theory has implications for the optimal provision of risk free bonds the structure of asset returns and liquidity

introduction to the symposium issue on money and liquidity abstract this symposium on money and liquidity follows a conference held in santa barbara in august 2014 under the sponsorship of the laboratory for aggregate economics and finance at ucsb the conference was a celebration of the twenty fifth anniversary of the publication of kiyotaki and wright s on money as a medium of exchange this symposium contains a selection of the papers presented at the conference and a selection of regular submissions that fit the theme all papers were peer reviewed according to the usual jet procedures

optimal monetary policy what we know and what we don t know in this article i examine the current state of knowledge about optimal monetary policy i distinguish between two literatures basic and applied the basic literature is explicit about the frictions that generate a positive value for money and make it socially beneficial the applied literature is not i describe the recent lessons about monetary policy that we have learned from each literature and discuss how the two distinct approaches may be usefully combined

coalition proof implementation abstract a new condition is shown to be necessary and sufficient for coalition proof nash equilibrium cpne implementation in environments with complete information this result implies that all choice functions are cpne implementable when individuals utility functions are bounded with respect to all variables except for money and are either analytic or quasi linear journal economic literature classification numbers c72 d72 d78

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

the elastic provision of liquidity by private agents i study a model of investment by financially constrained firms that are heterogeneous with respect to their exposure to an aggregate liquidity shock a firm that is susceptible to the shock will mitigate its exposure by purchasing claims issued by a firm that is not liabilities of an unaffected firm may earn a liquidity premium due to their fungibility and because they are backed by productive investment their supply is elastic to the demand this segmentation implies that an aggregate liquidity shock has different consequences across sectors of the economy

asset prices liquidity and monetary policy in an exchange economy i formulate a model in which money coexists with equity shares on a risky aggregate endowment agents can use equity as a means of payment so shocks to equity prices translate into aggregate liquidity shocks that disrupt the mechanism of exchange i characterize a family of optimal monetary policies and find that the resulting equity prices are independent of monetary considerations i also study a perturbation of the family of optimal policies that targets a positive constant nominal interest rate and find that in this case the real equity return includes a liquidity return that depends on monetary considerations

the decline in private pension coverage in the united states abstract consistent annual time series evidence is presented that private pension coverage in the united states has declined by approximately ten percent in the 1979 1987 period sectoral shifts in industrial activity appear to be a major explanation for the contraction

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

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

implementation in undominated strategies a look at bounded mechanisms this paper examines the impact of placing natural restrictions on the mechanisms considered for implementation problems it is shown that if all mechanisms are considered and preferences satisfy a basic condition then any social choice correspondence can be implemented in undominated strategies an example points out that the strength of this result derives from the use of mechanisms with questionable features in part of the message space the agent who announces the highest integer is rewarded this sort of tail chasing construction common in the constructive proofs of the literature is used to assure that undesired strategy combinations do not form an equilibrium if such mechanisms are ruled out then the social choice correspondences which can be implemented in undominated strategies satisfy an incentive compatibility type condition called strategy resistence for social choice functions this is equivalent to strategy proofness this contrast suggests that this issue should be examined as it applies to other solution concepts used in implementation theory the last portion of the paper begins to explore the issue as it relates to nash implementation and undominated nash implementation

explaining the decline in the offer rate of employer retirement plans between 2003 and 2012 workplace retirement plans deferred compensation plans dcs and deferred benefit plans dbs help workers save for retirement conveniently consistently and automatically but the percentage of

efficient allocations with hidden income and hidden storage we consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that unlike in environments without unobservable storage the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves in this paper we consider an environment in which individuals have random income and can accumulate assets through a storage technology their income realizations and their asset position are private information given these informational frictions we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk free bonds among themselves there is a large prior literature which examines the characteristics of efficient risksharing in dynamic settings in the presence of private information unlike our paper this literature generally finds that efficient allocations do not coincide with the equilibrium allocations of any economy with a competitive bond market see atkeson and lucas 1992 in particular the key difference between our paper and these preceding ones is that the earlier literature assumes either that agents cannot accumulate resources over time or that if they can this accumulation is observable in contrast we assume that both agents incomes and their stored resources are private information it is this combination of assumptions that leads to our result our findings are reminiscent of allen s 1985 he considers a dynamic principalagent relationship in which the agent is risk averse and has hidden stochastic income the

cluster sample methods in applied econometrics inference methods that recognize the clustering of individual observations have been available for more than 25 years brent moulton 1990 caught the attention of economists when he demonstrated the serious biases that can result in estimating the effects of aggregate explanatory variables on individual specific response variables the source of the downward bias in the usual ordinary least squares ols standard errors is the presence of an unobserved state level effect in the error term more recently john pepper 2002 showed how accounting for multi level clustering can have dramatic effects on t statistics while adjusting for clustering is much more common than it was 10 years ago inference methods robust to cluster correlation are not used routinely across all relevant settings in this paper i provide an overview of applications of cluster sample methods both to cluster samples and to panel data sets

re use of collateral in the repo market this paper introduces a methodology to estimate the re use of collateral based on actual transaction data with a comprehensive data set from the swiss franc repo market we are able to provide the first systematic study on the re use of collateral we find that re using collateral was most popular prior to the financial crisis when roughly 10 of the outstanding interbank volume was secured with re used collateral furthermore we show that the re use of collateral increases with the scarcity of collateral by giving an estimate of the collateral re use and explaining its drivers the paper contributes to the on going debate on collateral availability

bargaining power and wage employment contracts in a unionized industry input and output data are used in conjunction with negotiated wages and employment to estimate a fully specified bargaining model between a labour union the international woodworkers of america and representatives from the british columbia wood products industry bargaining powers are modelled as functions of exogenous variables believed to have influenced the parties relative strike costs the estimated bargaining powers are plotted over time and compared to the proportion of rents captured by each party parameters of the union utility function and the firms technology are also estimated and hypothesis tests are conducted on various aspects of the model there are still relatively few studies in which fully specified models of bargaining between labour unions and firms are estimated this reflects both the extensive data requirements and the complexity of the models involved a fully specified model includes a representation of the firms objectives and technological constraints the union s goals and constraints and the bargaining structure furthermore even when micro data are available usually more than two parties are involved i e firms will negotiate with several unions and each union will have to deal separately with the many firms operating within the industry this complicates the modelling of the bargaining setting considerably in this study data on the wood products industry in british columbia canada are analyzed during the period under study 1963 1983 negotiations in this industry were highly centralized in fact the bargaining setting can be described as a bilateral monopoly between the international woodworkers of america iwa a powerful and stable union and the forest industrial relations an employer association representing firms in the industry this data set includes information on outputs and nonlabour inputs thus allowing the calculation of profits and the joint determination of output and other inputs along with employment and wages a structural model with four dependent variables wages employment output and a materials and supplies input is estimated firms are assumed to maximize profits and union objectives are modelled by a ces utility function with employment and the difference between union wages and alternative wages as arguments given a representation for the firms technology and the union preferences a

bank sovereign risk spillovers in the european debt crisis this paper investigates contagion between bank risk and sovereign risk in europe over the period 2006 2011 since this period covers various stages of the banking and sovereign crisis it oers a fertile ground to analyze bank sovereign risk spillovers we de ne contagion as excess correlation i e correlation between banks and sovereigns over and above what is explained by common factors using cds spreads at the bank and at the sovereign level moreover we investigate the determinants of contagion by analyzing bank speci c as well as country speci c variables and their interaction we provide empirical evidence that various contagion channels are at work including a strong home bias in bank bond portfolios using the eba s disclosure of sovereign exposures of banks we nd that banks with a weak capital and or funding position are particularly vulnerable to risk spillovers at the country level the debt ratio is the most important driver of contagion

the liquidity coverage ratio and security prices abstract what is the added value of a security which qualifies as a high quality liquid asset hqla under the basel iii liquidity coverage ratio lcr in this paper we quantify the added value in terms of yield changes and as suggested by stein 2013 call it hqla premium to do so we exploit the introduction of the lcr in switzerland as a unique quasi natural experiment and we find evidence for the existence of an hqla premium in the order of 4 basis points guided by theoretical considerations we claim that the hqla premium is state dependent and argue that our estimate is a lower bound measure furthermore we discuss the implications of an economically significant hqla premium thereby we contribute to a better understanding of the lcr and its implications for financial markets

lapm a liquidity based asset pricing model the intertemporal capm predicts that an asset s price is equal to the expectation of the product of the asset s payoff and a representative consumer s intertemporal marginal rate of substitution this paper develops an alternative approach to asset pricing based on corporations desire to hoard liquidity our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers also leverage ratios capital adequacy requirements and the composition of savings affect the corporate demand for liquid assets and thereby interest rates starting with the capital asset pricing model capm derived by sharpe 1964 lintner 1965 and mossin 1966 market finance has emphasized the role of consumers time preference and risk aversion in determining asset prices the intertemporal consumption based asset pricing model e g rubinstein 1976 lucas 1978 breeden 1979 harrison and kreps 1979 cox ingersoll and ross 1985 hansen and jagannathan 1991 predicts that an asset s current price is equal to the expectation conditioned on current information of the product of the asset s payoff and a representative consumer s intertemporal marginal rate of substitution imrs while fundamental this dominant paradigm for pricing assets has some wellrecognized shortcomings see below and there is clearly scope for alternative and complementary approaches this paper begins developing one such approach based on aggregate liquidity considerations 1 our starting point is that the productive and financial spheres of the economy have autonomous demands for financial assets and that their valuations for these assets are often disconnected from the representative consumer s corporate demand for financial assets is driven by the desire to hoard liquidity in order to fulfill future cash needs in contrast with the

plant size and the decline of unionism abstract declining plant size is shown to explain a significant portion of the recent decline in unionism particularly in manufacturing the paper also shows how to use the probit model to decompose the change in unionism into explained and unexplained components

coalition proof nash equilibria ii applications abstract in bernheim peleg and whinston coalition proof equilibria i concepts j econ theory 42 1987 1 12 we proposed the notion of coalition proof nash equilibrium and perfectly coalition proof nash equilibrium as solution concepts for strategic environments in which players can freely discuss their strategies but cannot make binding commitments this paper undertakes applications to several economic problems including the behavior of cournot oligopolists oligopolistic entry deterrence cooperation in finite horizon games and social choice rule implementation

collateral values by asset class evidence from primary securities dealers using data on repurchase agreements by primary securities dealers we show that three classes of securities treasury securities securities issued by government sponsored agencies and mortgage backed securities can be formally ranked in terms of their collateral values in the general collateral gc market we then show that gc repurchase agreement repo spreads across asset classes display jumps and significant temporal variation especially at times of predictable liquidity needs consistent with the safe haven properties of treasury securities these jumps are driven almost entirely by the behavior of the gc repo rates of treasury securities estimating the collateral rents earned by owners of these securities we find such rents to be sizable for treasury securities and nearly zero for agency and mortgage backed securities finally we link collateral values to asset prices in a simple no arbitrage framework and show that variations in collateral values explain a significant fraction of changes in short term yield spreads but not those of longer term spreads our results point to securities role as collateral as a promising direction of research to improve understanding of the pricing of money market securities and their spreads jel g12 g23