Degreasing the Wheels of Finance

Berentsen, Aleksander; Huber, Samuel; Marchesiani, Alessandro

doi:10.1111/iere.12069

Cited by 48 publications

(34 citation statements)

References 54 publications

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“…Our paper is therefore also related to the literature that focuses on correcting pecuniary externalities, such as Berentsen et al (2014 and2015b). Berentsen et al (2014) …nd that adding search frictions to a competitive secondary …nancial market can be welfare-improving for high in ‡ation rates.…”

Section: Literaturementioning

confidence: 95%

“…Berentsen et al (2014) …nd that adding search frictions to a competitive secondary …nancial market can be welfare-improving for high in ‡ation rates. The reason is that adding search frictions increases the demand for money, which is welfare-improving, but it also increases consumption variability, since only some agents have access to the secondary …nancial market.…”

Section: Literaturementioning

confidence: 99%

“…According to (5), the marginal cost of taking one additional unit of bonds into the next period, , is lower than that for money, , for any < 1. The reason is that bonds are only bene…cial to agents who will be active consumers in the next period.…”

Section: Primary Bond Marketmentioning

confidence: 99%

“…Otherwise, bonds would be perfect substitutes for money and thus be redundant. See Kocherlakota (2003), Andolfatto (2011), Berentsen and Waller (2011), or Berentsen et al (2014), for a more detailed discussion. 3 There is a rapidly growing literature which builds on the seminal contribution of Du¢ e et al (2005).…”

Section: Introductionmentioning

confidence: 99%

“…Hereafter, we will show that it is always welfareimproving to reduce the bond-to-money ratio in the type-I equilibrium, such that the bond constraint becomes binding, and the economy moves to a region in the type-III equilibrium, where welfare is maximized (highlighted by the green line). 5 For in ‡ation rates above 12 , either the type-II or the type-III equilibrium exists. The triangle in the top-right section shows that there may exist a region, where the type-II and the type-III equilibrium coexist.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Central Bank Purchases of Government Bonds

Huber

Kim

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe develop a microfounded model, where agents have the possibility to trade money for government bonds in an over-the-counter market. It allows us to address important open questions about the e¤ects of central bank purchases of government bonds, these being: under what conditions these purchases can be welfare-improving, what incentive problems they mitigate, and how large these e¤ects are. Our main …nding is that this policy measure can be welfare-improving, by correcting a pecuniary externality. Concretely, the value of money is increased as central bank's purchases of government bonds induce agents to increase their demand for money, which is welfare-improving.

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Section: Literaturementioning

confidence: 95%

Section: Literaturementioning

confidence: 99%

Section: Primary Bond Marketmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Central Bank Purchases of Government Bonds

Huber

Kim

2015

SSRN Journal

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Over-the-counter trade and the value of assets as collateral

Geromichalos

Lee

et al. 2015

Econ Theory

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We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually beneficial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valu-ation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Gˆarleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually beneficial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Gârleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter (OTC) market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.

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The societal benefit of a financial transaction tax

Berentsen

Huber

Marchesiani

2016

European Economic Review

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We provide a novel justi…cation for a …nancial transaction tax for economies, where agents face stochastic consumption opportunities. A …nancial transaction tax makes it more costly for agents to readjust their portfolios of liquid and illiquid assets in response to these liquidity shocks, which increases the demand for-and the price of liquid assets. The higher price improves liquidity insurance and welfare for other market participants. We calibrate the model to U.S. data and …nd that the optimal …nancial transaction tax is 1.6 percent and that it reduces the volume of …nancial trading by 17 percent.

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Degreasing the Wheels of Finance

Cited by 48 publications

References 54 publications

Central Bank Purchases of Government Bonds

Central Bank Purchases of Government Bonds

Over-the-counter trade and the value of assets as collateral

The societal benefit of a financial transaction tax

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