In the theoretical literature on consumer search, one conclusion is nearly universal: as buyers become better able to observe and compare prices ex ante, sellers will set lower prices in equilibrium. In this paper, I examine a standard consumer search model with one small -- yet often relevant -- additional restriction: I assume that sellers are capacity constrained. In this environment, I illustrate that the conventional wisdom regarding information and prices does not necessarily hold: having more informed consumers can lead to a decrease in prices, have no effect at all, or even lead to an increase in prices.

In a market in which sellers compete by posting mechanisms, we study how the properties of the meeting technology affect the mechanism that sellers select. In general, sellers have incentive to use mechanisms that are socially efficient. In our environment, sellers achieve this by posting an auction with a reserve price equal to their own valuation, along with a transfer that is paid by (or to) all buyers with whom the seller meets. However, we define a novel condition on meeting technologies, which we call "invariance," and show that the transfer is equal to zero if and only if the meeting technology satisfies this condition.JEL classification: C78, D44, D83.

We study how recognizability affects assets' acceptability, or liquidity. Some assets, like U.S. currency, are readily accepted because sellers can easily recognize their value, unlike stock certificates, bonds or foreign currency, say. This idea is common in monetary economics, but previous models deliver equilibria where less recognizable assets are always accepted with positive probability, never probability 0. This is inconvenient when prices are determined through bargaining, which is difficult with private information. We construct models where agents reject outright assets that they cannot recognize, at least for some parameters. Thus, information frictions generate liquidity differences without overly complicating the analysis.JEL codes: D82, D83, E4

In response to the Great Recession, the Federal Reserve resorted to several unconventional policies that drastically altered the landscape of the federal funds market. The current environment, in which depository institutions are flush with excess reserves, has forced policymakers to design a new operational framework for monetary policy implementation. We provide a parsimonious model that captures the key features of the current federal funds market along with the instruments introduced by the Federal Reserve to implement its target for the federal funds rate. We use this model to analyze the factors that determine rates and volumes under the new implementation framework and to study the effects of changes in the policy rates and other shocks to the economic environment. We also calibrate the model and use it as a quantitative benchmark for applied analysis, with a particular emphasis on understanding the role of the overnight reverse repurchase agreement facility in supporting the federal funds rate.

We study a search and bargaining model of an asset market, where investors' heterogeneous valuations for the asset are drawn from an arbitrary distribution. Our solution technique makes the model fully tractable and allows us to provide a full characterization of the unique equilibrium, in closed-form, both in and out of steady-state. Using this characterization, we first establish that the model generates aggregate trading patterns that are consistent with those observed in many over-the-counter asset markets. Then, we show that the model can replicate empirical regularities reported from micro-level data sets, including the relationships between the length of the intermediation chains through which assets are reallocated, the network centrality of the dealers involved in these chains, and the markup charged on the asset being passed along the chain. Finally, we show that heterogeneity magnifies the price impact of search frictions, and that this impact is more pronounced on price levels than on price dispersion. Hence, using observed price dispersion to quantify the effect of search frictions on price discounts or premia can be misleading. Julien Hugonnier Ecole Polytechnnique Fédérale de LausanneQuartier UNIL Dorigny Extranef #212 1015 Lausanne Switzerland and Swiss Finance Institute price discounts or premia can be misleading: price dispersion can essentially vanish while price levels are still far from their frictionless counterpart.Our model, which we formally describe in Section 2, starts with the basic building blocks of DGP. There is a measure one of investors who can hold either zero or one share of an asset in fixed supply. Investors have stochastic, time-varying utility types that generate heterogenous valuations for the asset. Each investor is periodically and randomly matched with another, and a transaction ensues if there are gains from trade, with prices being determined by Nash bargaining. Our point of departure from DGP is that we allow utility types to be drawn from an arbitrary distribution.Allowing for more than two types changes the nature of the analysis significantly, as it implies that individual investors now face ex ante uncertainty about the utility types of potential trading partners, and hence about the terms of trade. More precisely, the relevant state variable in our model is an infinite-dimensional object: the distributions of the utility types among investors that hold zero and one asset, respectively, over time.Despite this greater complexity, we show in Section 3 that the model remains fully tractable. In particular, we characterize the equilibrium, in closed form, both in and out of the steady state. This requires deriving explicit solutions for the joint distributions of asset holdings and utility types, and for investors' reservation values; both of these derivations are new to the literature. Moreover, in contrast to the usual guess-and-verify approach, we establish several elementary properties of reservation values directly-without making a priori assumptions on the direc...