A Unified Framework for Monetary Theory and Policy Analysis

Lagos, Ricardo; Wright, Randall

doi:10.1086/429804

Cited by 1,282 publications

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References 38 publications

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“…15 The deviating household divides the buyers into group 1 and group 2. The size of group j (= 1, 2) is n j , with n 1 + n 2 = N .…”

Section: Discussionmentioning

confidence: 99%

“…In our model, the members share consumption. An alternative formulation is to allow agents to smooth utility, as it is done in [15]. These two formulations are the same when the utility function is linear in consumption.…”

Section: Multiple Steady Statesmentioning

confidence: 99%

“…As Figure 3 shows, multiple steady states can arise with a linear utility function. For this reason, multiple equilibria should arise as well in the framework of [15] when search intensity is endogenized. 12 The steady states can be ranked according to welfare, as stated in Proposition 5.2.…”

Section: Multiple Steady Statesmentioning

confidence: 99%

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Money, price dispersion and welfare

Peterson

Shi

Studies in Economic Theory

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Summary.We introduce heterogeneous preferences into a tractable model of monetary search to generate price dispersion, and then examine the effects of money growth on price dispersion and welfare. With buyers' search intensity fixed, we find that money growth increases the range of (real) prices and lowers welfare as agents shift more of their consumption to less desirable goods. When buyers' search intensity is endogenous, multiple equilibria are possible. In the equilibrium with the highest welfare level, money growth reduces welfare and increases the range of prices, while having ambiguous effects on search intensity. However, there can be a welfare-inferior equilibrium in which an increase in money growth increases search intensity, increases welfare, and reduces the range of prices.

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“…15 The deviating household divides the buyers into group 1 and group 2. The size of group j (= 1, 2) is n j , with n 1 + n 2 = N .…”

Section: Discussionmentioning

confidence: 99%

Section: Multiple Steady Statesmentioning

confidence: 99%

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Money, price dispersion and welfare

Peterson

Shi

Studies in Economic Theory

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“…Our model is based on the alternating market formulation of Lagos and Wright (2005), and liquidity shocks of Berentsen and Monnet (2008). This allows us to study frictions in the interbank market but still have frictionless trade in the asset market.…”

Section: Overviewmentioning

confidence: 99%

Central bank haircut policy

2010

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We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral. Setting a haircut therefore involves balancing the trade-off between relaxing the liquidity constraints of agents on one hand, and increasing potential inflation risk and distorting the portfolio choices of agents on the other. We argue that the optimal haircut is higher when the central bank is unable to lend exclusively to agents who actually need liquidity. Finally, for an unexpected drop in the haircut, the central bank can be more aggressive than when setting a permanent level of the haircut. RésuméLes auteurs étudient la politique de décote optimale à l'aide d'un modèle formalisant l'octroi par la banque centrale de prêts contre garantie. Ils montrent qu'une facilité de prêt offre une assurance à la fois contre le risque de liquidité et contre le risque de baisse de la valeur de la garantie. L'établissement du niveau de la décote suppose donc un arbitrage entre, d'une part, le desserrement des contraintes de liquidité des agents et, d'autre part, le risque de faire augmenter l'inflation et de fausser les choix de portefeuille des agents. Les auteurs soutiennent que la décote optimale est plus élevée lorsque la banque centrale n'est pas en mesure de limiter exclusivement ses prêts aux agents qui ont réellement besoin de liquidités. Enfin, quand elle abaisse la décote de façon inattendue, la banque centrale a plus de latitude que lorsqu'elle en fixe durablement le niveau.

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“…Frequently, such contexts are modeled by assuming that there is random matching of agents. For instance, in several papers in monetary theory, markets with decentralized trade are modeled by assuming that agents are randomly matched in pairs; see, e.g., Kiyotaki and Wright (1989) or Lagos and Wright (2005). In labor economics, search frictions are modeled by assuming that workers and firms are randomly matched; see, e.g., Mortensen and Pissarides (1994).…”

Section: Introductionmentioning

confidence: 99%

Independent random matching

Podczeck

Puzzello

2010

Econ Theory

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Random matching models with a continuum population are widely used in economics to study environments where agents interact in small coalitions. This paper provides foundations to such models. In particular, the paper establishes an existence result for random matchings that are universal in the sense that certain desirable properties are satisfied for any assignment of types to agents. The result applies to infinitely many types of agents, thus covering random matching models which are currently used in the literature without a foundation. Furthermore, the paper provides conditions guaranteeing uniqueness of random matching. JEL classification: C00, C02, C73, C78Keywords: Random matching; Involution; Independence; Continuum population; Fubini extension * We thank an anonymous referee for valuable comments and for suggestions on how to improve the presentation of the material of this paper.

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A Unified Framework for Monetary Theory and Policy Analysis

Cited by 1,282 publications

References 38 publications

Money, price dispersion and welfare

Money, price dispersion and welfare

Central bank haircut policy

Independent random matching

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