Money and Capital as Competing Media of Exchange

Lagos, Ricardo; Rocheteau, Guillaume

doi:10.21034/sr.341

Cited by 59 publications

(128 citation statements)

References 4 publications

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“…This is related to recent work by Geromichalos, Licari and Suárez‐Lledó (2006), Lagos (2006), and Lagos and Rocheteau (2007) on search models with multiple assets, but the important additional assumption, for our purposes, is that we introduce a fixed cost to liquidating one of them.…”

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confidence: 96%

A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

2008

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Many individuals simultaneously have significant credit card debt and money in the bank. The "credit card debt puzzle "is as follows: given high interest rates on credit cards and low rates on bank accounts, why not pay down debt? While some economists go to elaborate lengths to explain this, we argue it is a special case of the "rate of return dominance puzzle "from monetary economics. We extend standard monetary theory to incorporate consumer debt, which is interesting in its own right since developing models where money and credit coexist is a long-standing challenge. Our model is quite tractable-for example, it readily yields nice existence and characterization results-and helps put into context recent discussions of consumer debt. Copyright 2008 The Review of Economic Studies Limited.

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confidence: 96%

A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

2008

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“…See also Kocherlakota (), Wallace (), Araujo (), Aliprantis et al. (), Lagos and Wright (), and Araujo et al. () for discussions of what makes money essential.…”

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confidence: 99%

“…Since in the Shi framework agents can use money and bonds to pay for goods in some matches, it is more closely related to the literature that studies competing media of exchange (see, e.g., Geromichalos et al., ; Lagos and Rocheteau, , , ; Lester et al., ).…”

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confidence: 99%

Degreasing the Wheels of Finance

Berentsen

Huber

Marchesiani

2014

International Economic Review

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Can there be too much trading in financial markets? We construct a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks. A financial market allows agents to adjust their portfolio of liquid and illiquid assets in response to these shocks. The optimal policy is to restrict access to this market because portfolio choices exhibit a pecuniary externality: Agents do not take into account that by holding more of the liquid asset, they not only acquire additional insurance against these liquidity shocks, but also marginally increase the value of the liquid asset, which improves insurance for other market participants. .2 Our basic framework is the divisible money model developed in Lagos and Wright (2005). The main departure from this framework is that we add government bonds and a secondary bond market, where agents can trade bonds for money after experiencing an i.i.d. liquidity shock. 3 We call an asset that can be exchanged for consumption goods liquid and one that cannot be exchanged illiquid. In our model, the liquid asset is fiat money and the illiquid asset is a one-period government bond. The fact that government bonds cannot be used as a medium of exchange to acquire consumption goods is the consequence of certain assumptions that we impose on our environment as explained in the main discourse of this article. 735 C (2014) by the

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“…In any case, if A 1 is above some threshold

A_{1}^{*}

, defined below, then

s = 0

, and if

A_{1} < A_{1}^{*}

, then

s > 0

. This much is standard (Geromichalos et al., ; Lagos and Rocheteau, ; Lester et al., ). The novelty here concerns deriving the implications for innovation and growth.…”

Section: Technology Transfer With Imperfect Creditmentioning

confidence: 99%

Innovation and Growth With Financial, and Other, Frictions

Chiu¹,

Meh

Wright

2017

Int Economic Review

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The generation of ideas and their implementation are crucial for economic performance. We study this in a model of endogenous growth, where productivity increases with innovation and where the exchange of ideas (technology transfer) allows those with comparative advantage to implement them. Search, bargaining, and commitment frictions impede the idea market, however, reducing efficiency and growth. We characterize optimal policies involving subsidies to innovative and entrepreneurial activity, given both knowledge and search externalities. The role of liquidity is discussed. We show intermediation helps by financing more transactions with fewer assets and, more subtly, by ameliorating holdup problems. We also discuss some evidence. * Manuscript received October 2014; revised October 2015. 1 We thank many friends and colleagues for comments on this projects; it has been presented too many times and we have talked to too many people to try and list them all.

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Money and Capital as Competing Media of Exchange

Cited by 59 publications

References 4 publications

A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

Degreasing the Wheels of Finance

Innovation and Growth With Financial, and Other, Frictions

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