Wirtschaftstheorie (Berentsen)Head of Research Unit Prof. Dr.Aleksander BerentsenOverviewMembersPublicationsProjects & CollaborationsProjects & Collaborations OverviewMembersPublicationsProjects & Collaborations Projects & Collaborations 29 foundShow per page10 10 20 50 FV-60 Smart Contracts Research Project | 1 Project MembersTo be done Exit Strategies and Trade Dynamics in Repo Markets Research Project | 1 Project MembersHow can a central bank control interest rates in an environment with large excess reserves? In this paper, we develop a dynamic general equilibrium model of a secured money market and calibrate it to the Swiss franc repo market to study this question. The theoretical model allows us to identify the factors that determine demand and supply of central bank reserves, the money market rate and trading activity in the money market. In addition, we simulate various instruments that a central bank can use to exit from unconventional monetary policy. These instruments are assessed with respect to the central bank's ability to control the money market rate, their impact on the trading activity and the operational costs of an exit. All exit instruments allow central banks to attain an interest rate target. However, the trading activity differs significantly among the instruments and central bank bills and reverse repos are the most cost-effective. Exchange Programm Université Cadi Ayyad and University of Basel Research Project | 1 Project MembersThe exchange program is intended to enable students from the Université Cadi Ayyad in Marrakesh to spend a semester abroad at the University of Basel. Only students of economics will be considered for the exchange program. These students will be able to attend lectures at the University of Basel within this framework. They will also have the opportunity to participate in the "Zaeslin + Maag Summer School for Law, Economics and Public Policy". Each semester, two students will be able to profit from this program. These students will be able to apply for a grant to subsidize their stay in Switzerland. These grants should be completely financed by foundations. The grant applications will be evaluated jointly by both universities' project organizers on the basis of the students' university performance and letters of motivation. In a second phase, selected students will be invited to an interview, which will form the basis of the final decision. FV-37 Bitcoin Research Project | 1 Project Members1. Forschungsgegenstand Funktionsweise, Relevanz und praktische Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. 2. Problemstellung Virtuelle Währungen im Allgemeinen und Bitcoin im Speziellen stellen potentielle Nutzer vor grosse Einstiegsbarrieren und Unsicherheiten. Informationen sind ungenügend vorhanden, nicht verlässlich und zumeist schlecht aufbereitet, so dass die individuelle Einarbeitung beschwerlich und nur mit einem sehr hohen Ressourcenaufwand bewältigbar ist. Dabei wäre eben dieses Wissen essentiell bei der Entscheidung ob und falls ja, inwiefern der Gebrauch von Bitcoin wirtschaftlich interessant sein könnte. Mangelndes Verständnis kann einerseits dazu führen, dass Unternehmen und Private die Kryptowährung voreilig annehmen ohne dabei die Tragweite und Gefahren dieser Entscheidung zu verstehen. Auf der anderen Seite kann zu grosse Zurückhaltung aber dazu führen, dass eine potentiell transaktionskostenmindernde Technologie, mangels entsprechendem Knowhow, unberücksichtigt bleibt. 3. Zielsetzung Ziel des Projekts ist das Erstellen einer soliden Forschungsgrundlage zum Thema virtuelle Währungen mit Fokus Bitcoin, welche von Privaten und Aufsichtsbehörden als Grundlagenwerk konsultiert und im akademischen Umfeld als Basis für weitere Forschungsprojekte verwendet werden kann. Diese Forschungsgrundlage wird in Buchform publiziert und beschäftigt sich mit der Funktionsweise, der Relevanz und der praktischen Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. Die Relevanz von Bitcoin wird im monetär-historischen Kontext analysiert. Ziel dieser Analyse ist es die Motivation hinter Bitcoin zu verstehen, um die Kryptowährung dadurch entsprechend einordnen und abgrenzen zu können. Zur Abhandlung der Funktionsweise werden zentrale Teile des Bitcoin Protokolls vorgestellt und erläutert. Dazu gehören unter anderem Fragestellungen wie: "Was ist und wie funktioniert Mining?" oder "Welche kryptographischen Verfahren stecken hinter der theoretischen Sicherheit des Systems?". Der Teil zur praktischen Tauglichkeit beschäftigt sich mit konkreten Fallbeispielen und ermöglicht Einblicke in Chancen und Risiken der virtuellen Währung. Dabei werden ganz konkret Probleme aufgedeckt, die bei der Verwendung in der Praxis beachtet werden sollten. Die einzelnen Kapitel werden so ausgestaltet, dass sie einem möglichst breiten Publikum zugänglich sind. Technische Ergänzungen werden in dem Appendix des jeweiligen Kapitels zu finden sein. Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth. The Societal Benefits of a Financial Transaction Tax Research Project | 3 Project MembersWe investigate the positive and normative implications of a tax on financial market transactions in a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks and financial trading is essential. Our main finding is that agents' portfolio choices display a pecuniary externality which results in too much trading. We calibrate the model to U.S. data and find an optimal tax rate of 2.5 percent. Imposing this tax reduces trading in financial markets by 30 percent Financial Innovations, Money Demand and the Welfare Cost of Inflation Research Project | 3 Project MembersIn the 1990s, the empirical relation between money demand and interest rates began to fall apart. We analyze to what extent improved access to money markets can explain this break-down. For this purpose, we construct a microfounded monetary model with a money market, which provides insurance against liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that improved access to money markets can explain the behavior of money demand very well. Furthermore, we show that, by allocating money more efficiently, better access to money markets decrease the welfare cost of inflation substantially. Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of intermediated assets as media of exchange in a neo- classical growth model. An intermediary is delegated control over productive capital and finances itself by issuing claims against the revenue generated by its operations. Unlike physical capital, intermediated claims are assumed to be liquid-they constitute a form of asset-backed money. The intermediary is assumed to control 1) the number of claims outstanding, 2) the dividends paid out to claim holders and 3) the fee charged for collecting the dividend. We find that for patient economies, the first-best allocation can always be implemented as a competitive equilibrium through an appropriately designed intermediary policy rule. The optimal policy requires strictly positive inflation. While it is also possible to implement the first-best by introducing at money and a lump- sum tax instrument, our results demonstrate that neither of these interventions are necessary for efficiency. Three Essays on Asymmetric Information in Monetary Economics Research Project | 2 Project MembersThe aim of this paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis. The aim of the first paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis. Limelight on Dark Markets: An Experimental Study of Liquidity and Information Research Project | 1 Project MembersThe goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005): individuals are matched bilaterally and at random, there are gains from trades due to differences in technologies and endowments, and the terms of trade are determined through a simple bargaining protocol. Subjects buy commodities that have different private values with assets that have common values and can be subject to a private information problem. The asset plays the role of a medium of exchange, but this role can be affected by its lack of "recognizability." We study a benchmark experiment where the OTC bargaining game takes place under complete information, a set of experiments with adverse selection where the terminal value of notes are determined exogenously, and a set of experiments with hidden actions where subjects can produce fraudulent notes at some cost. 123 123 OverviewMembersPublicationsProjects & Collaborations
Projects & Collaborations 29 foundShow per page10 10 20 50 FV-60 Smart Contracts Research Project | 1 Project MembersTo be done Exit Strategies and Trade Dynamics in Repo Markets Research Project | 1 Project MembersHow can a central bank control interest rates in an environment with large excess reserves? In this paper, we develop a dynamic general equilibrium model of a secured money market and calibrate it to the Swiss franc repo market to study this question. The theoretical model allows us to identify the factors that determine demand and supply of central bank reserves, the money market rate and trading activity in the money market. In addition, we simulate various instruments that a central bank can use to exit from unconventional monetary policy. These instruments are assessed with respect to the central bank's ability to control the money market rate, their impact on the trading activity and the operational costs of an exit. All exit instruments allow central banks to attain an interest rate target. However, the trading activity differs significantly among the instruments and central bank bills and reverse repos are the most cost-effective. Exchange Programm Université Cadi Ayyad and University of Basel Research Project | 1 Project MembersThe exchange program is intended to enable students from the Université Cadi Ayyad in Marrakesh to spend a semester abroad at the University of Basel. Only students of economics will be considered for the exchange program. These students will be able to attend lectures at the University of Basel within this framework. They will also have the opportunity to participate in the "Zaeslin + Maag Summer School for Law, Economics and Public Policy". Each semester, two students will be able to profit from this program. These students will be able to apply for a grant to subsidize their stay in Switzerland. These grants should be completely financed by foundations. The grant applications will be evaluated jointly by both universities' project organizers on the basis of the students' university performance and letters of motivation. In a second phase, selected students will be invited to an interview, which will form the basis of the final decision. FV-37 Bitcoin Research Project | 1 Project Members1. Forschungsgegenstand Funktionsweise, Relevanz und praktische Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. 2. Problemstellung Virtuelle Währungen im Allgemeinen und Bitcoin im Speziellen stellen potentielle Nutzer vor grosse Einstiegsbarrieren und Unsicherheiten. Informationen sind ungenügend vorhanden, nicht verlässlich und zumeist schlecht aufbereitet, so dass die individuelle Einarbeitung beschwerlich und nur mit einem sehr hohen Ressourcenaufwand bewältigbar ist. Dabei wäre eben dieses Wissen essentiell bei der Entscheidung ob und falls ja, inwiefern der Gebrauch von Bitcoin wirtschaftlich interessant sein könnte. Mangelndes Verständnis kann einerseits dazu führen, dass Unternehmen und Private die Kryptowährung voreilig annehmen ohne dabei die Tragweite und Gefahren dieser Entscheidung zu verstehen. Auf der anderen Seite kann zu grosse Zurückhaltung aber dazu führen, dass eine potentiell transaktionskostenmindernde Technologie, mangels entsprechendem Knowhow, unberücksichtigt bleibt. 3. Zielsetzung Ziel des Projekts ist das Erstellen einer soliden Forschungsgrundlage zum Thema virtuelle Währungen mit Fokus Bitcoin, welche von Privaten und Aufsichtsbehörden als Grundlagenwerk konsultiert und im akademischen Umfeld als Basis für weitere Forschungsprojekte verwendet werden kann. Diese Forschungsgrundlage wird in Buchform publiziert und beschäftigt sich mit der Funktionsweise, der Relevanz und der praktischen Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. Die Relevanz von Bitcoin wird im monetär-historischen Kontext analysiert. Ziel dieser Analyse ist es die Motivation hinter Bitcoin zu verstehen, um die Kryptowährung dadurch entsprechend einordnen und abgrenzen zu können. Zur Abhandlung der Funktionsweise werden zentrale Teile des Bitcoin Protokolls vorgestellt und erläutert. Dazu gehören unter anderem Fragestellungen wie: "Was ist und wie funktioniert Mining?" oder "Welche kryptographischen Verfahren stecken hinter der theoretischen Sicherheit des Systems?". Der Teil zur praktischen Tauglichkeit beschäftigt sich mit konkreten Fallbeispielen und ermöglicht Einblicke in Chancen und Risiken der virtuellen Währung. Dabei werden ganz konkret Probleme aufgedeckt, die bei der Verwendung in der Praxis beachtet werden sollten. Die einzelnen Kapitel werden so ausgestaltet, dass sie einem möglichst breiten Publikum zugänglich sind. Technische Ergänzungen werden in dem Appendix des jeweiligen Kapitels zu finden sein. Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth. The Societal Benefits of a Financial Transaction Tax Research Project | 3 Project MembersWe investigate the positive and normative implications of a tax on financial market transactions in a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks and financial trading is essential. Our main finding is that agents' portfolio choices display a pecuniary externality which results in too much trading. We calibrate the model to U.S. data and find an optimal tax rate of 2.5 percent. Imposing this tax reduces trading in financial markets by 30 percent Financial Innovations, Money Demand and the Welfare Cost of Inflation Research Project | 3 Project MembersIn the 1990s, the empirical relation between money demand and interest rates began to fall apart. We analyze to what extent improved access to money markets can explain this break-down. For this purpose, we construct a microfounded monetary model with a money market, which provides insurance against liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that improved access to money markets can explain the behavior of money demand very well. Furthermore, we show that, by allocating money more efficiently, better access to money markets decrease the welfare cost of inflation substantially. Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of intermediated assets as media of exchange in a neo- classical growth model. An intermediary is delegated control over productive capital and finances itself by issuing claims against the revenue generated by its operations. Unlike physical capital, intermediated claims are assumed to be liquid-they constitute a form of asset-backed money. The intermediary is assumed to control 1) the number of claims outstanding, 2) the dividends paid out to claim holders and 3) the fee charged for collecting the dividend. We find that for patient economies, the first-best allocation can always be implemented as a competitive equilibrium through an appropriately designed intermediary policy rule. The optimal policy requires strictly positive inflation. While it is also possible to implement the first-best by introducing at money and a lump- sum tax instrument, our results demonstrate that neither of these interventions are necessary for efficiency. Three Essays on Asymmetric Information in Monetary Economics Research Project | 2 Project MembersThe aim of this paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis. The aim of the first paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis. Limelight on Dark Markets: An Experimental Study of Liquidity and Information Research Project | 1 Project MembersThe goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005): individuals are matched bilaterally and at random, there are gains from trades due to differences in technologies and endowments, and the terms of trade are determined through a simple bargaining protocol. Subjects buy commodities that have different private values with assets that have common values and can be subject to a private information problem. The asset plays the role of a medium of exchange, but this role can be affected by its lack of "recognizability." We study a benchmark experiment where the OTC bargaining game takes place under complete information, a set of experiments with adverse selection where the terminal value of notes are determined exogenously, and a set of experiments with hidden actions where subjects can produce fraudulent notes at some cost. 123 123
Exit Strategies and Trade Dynamics in Repo Markets Research Project | 1 Project MembersHow can a central bank control interest rates in an environment with large excess reserves? In this paper, we develop a dynamic general equilibrium model of a secured money market and calibrate it to the Swiss franc repo market to study this question. The theoretical model allows us to identify the factors that determine demand and supply of central bank reserves, the money market rate and trading activity in the money market. In addition, we simulate various instruments that a central bank can use to exit from unconventional monetary policy. These instruments are assessed with respect to the central bank's ability to control the money market rate, their impact on the trading activity and the operational costs of an exit. All exit instruments allow central banks to attain an interest rate target. However, the trading activity differs significantly among the instruments and central bank bills and reverse repos are the most cost-effective.
Exchange Programm Université Cadi Ayyad and University of Basel Research Project | 1 Project MembersThe exchange program is intended to enable students from the Université Cadi Ayyad in Marrakesh to spend a semester abroad at the University of Basel. Only students of economics will be considered for the exchange program. These students will be able to attend lectures at the University of Basel within this framework. They will also have the opportunity to participate in the "Zaeslin + Maag Summer School for Law, Economics and Public Policy". Each semester, two students will be able to profit from this program. These students will be able to apply for a grant to subsidize their stay in Switzerland. These grants should be completely financed by foundations. The grant applications will be evaluated jointly by both universities' project organizers on the basis of the students' university performance and letters of motivation. In a second phase, selected students will be invited to an interview, which will form the basis of the final decision.
FV-37 Bitcoin Research Project | 1 Project Members1. Forschungsgegenstand Funktionsweise, Relevanz und praktische Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. 2. Problemstellung Virtuelle Währungen im Allgemeinen und Bitcoin im Speziellen stellen potentielle Nutzer vor grosse Einstiegsbarrieren und Unsicherheiten. Informationen sind ungenügend vorhanden, nicht verlässlich und zumeist schlecht aufbereitet, so dass die individuelle Einarbeitung beschwerlich und nur mit einem sehr hohen Ressourcenaufwand bewältigbar ist. Dabei wäre eben dieses Wissen essentiell bei der Entscheidung ob und falls ja, inwiefern der Gebrauch von Bitcoin wirtschaftlich interessant sein könnte. Mangelndes Verständnis kann einerseits dazu führen, dass Unternehmen und Private die Kryptowährung voreilig annehmen ohne dabei die Tragweite und Gefahren dieser Entscheidung zu verstehen. Auf der anderen Seite kann zu grosse Zurückhaltung aber dazu führen, dass eine potentiell transaktionskostenmindernde Technologie, mangels entsprechendem Knowhow, unberücksichtigt bleibt. 3. Zielsetzung Ziel des Projekts ist das Erstellen einer soliden Forschungsgrundlage zum Thema virtuelle Währungen mit Fokus Bitcoin, welche von Privaten und Aufsichtsbehörden als Grundlagenwerk konsultiert und im akademischen Umfeld als Basis für weitere Forschungsprojekte verwendet werden kann. Diese Forschungsgrundlage wird in Buchform publiziert und beschäftigt sich mit der Funktionsweise, der Relevanz und der praktischen Tauglichkeit von Bitcoin als Zahlungsmittel und/oder Wertanlage. Die Relevanz von Bitcoin wird im monetär-historischen Kontext analysiert. Ziel dieser Analyse ist es die Motivation hinter Bitcoin zu verstehen, um die Kryptowährung dadurch entsprechend einordnen und abgrenzen zu können. Zur Abhandlung der Funktionsweise werden zentrale Teile des Bitcoin Protokolls vorgestellt und erläutert. Dazu gehören unter anderem Fragestellungen wie: "Was ist und wie funktioniert Mining?" oder "Welche kryptographischen Verfahren stecken hinter der theoretischen Sicherheit des Systems?". Der Teil zur praktischen Tauglichkeit beschäftigt sich mit konkreten Fallbeispielen und ermöglicht Einblicke in Chancen und Risiken der virtuellen Währung. Dabei werden ganz konkret Probleme aufgedeckt, die bei der Verwendung in der Praxis beachtet werden sollten. Die einzelnen Kapitel werden so ausgestaltet, dass sie einem möglichst breiten Publikum zugänglich sind. Technische Ergänzungen werden in dem Appendix des jeweiligen Kapitels zu finden sein.
Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth.
The Societal Benefits of a Financial Transaction Tax Research Project | 3 Project MembersWe investigate the positive and normative implications of a tax on financial market transactions in a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks and financial trading is essential. Our main finding is that agents' portfolio choices display a pecuniary externality which results in too much trading. We calibrate the model to U.S. data and find an optimal tax rate of 2.5 percent. Imposing this tax reduces trading in financial markets by 30 percent
Financial Innovations, Money Demand and the Welfare Cost of Inflation Research Project | 3 Project MembersIn the 1990s, the empirical relation between money demand and interest rates began to fall apart. We analyze to what extent improved access to money markets can explain this break-down. For this purpose, we construct a microfounded monetary model with a money market, which provides insurance against liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that improved access to money markets can explain the behavior of money demand very well. Furthermore, we show that, by allocating money more efficiently, better access to money markets decrease the welfare cost of inflation substantially.
Monetary Policy with Asset-Backed Money Research Project | 1 Project MembersWe study the use of intermediated assets as media of exchange in a neo- classical growth model. An intermediary is delegated control over productive capital and finances itself by issuing claims against the revenue generated by its operations. Unlike physical capital, intermediated claims are assumed to be liquid-they constitute a form of asset-backed money. The intermediary is assumed to control 1) the number of claims outstanding, 2) the dividends paid out to claim holders and 3) the fee charged for collecting the dividend. We find that for patient economies, the first-best allocation can always be implemented as a competitive equilibrium through an appropriately designed intermediary policy rule. The optimal policy requires strictly positive inflation. While it is also possible to implement the first-best by introducing at money and a lump- sum tax instrument, our results demonstrate that neither of these interventions are necessary for efficiency.
Three Essays on Asymmetric Information in Monetary Economics Research Project | 2 Project MembersThe aim of this paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis. The aim of the first paper is to identify an optimal contract design for institutions bilaterally exchanging liquidity on a decentralized asset market with Lucas (1978) trees subject to asymmetric information. Within a search-theoretic dynamic general equilibrium model à la Lagos and Wright (2005), I establish a non-equivalence between collateralized credit and immediate settlement (an outright sale of assets) and show through a signaling game with Perfect Bayesian Nash Equilibra, why depositing assets as collateral is a dominant strategy. In addition, I provide a compelling reason why financial institutions apply haircuts to securities offered as collateral (over-collateralization), which justifies the observed behavior on the over-the-counter market for liquidity since the eruption of the global financial crisis.
Limelight on Dark Markets: An Experimental Study of Liquidity and Information Research Project | 1 Project MembersThe goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005): individuals are matched bilaterally and at random, there are gains from trades due to differences in technologies and endowments, and the terms of trade are determined through a simple bargaining protocol. Subjects buy commodities that have different private values with assets that have common values and can be subject to a private information problem. The asset plays the role of a medium of exchange, but this role can be affected by its lack of "recognizability." We study a benchmark experiment where the OTC bargaining game takes place under complete information, a set of experiments with adverse selection where the terminal value of notes are determined exogenously, and a set of experiments with hidden actions where subjects can produce fraudulent notes at some cost.
