191 research outputs found
Directed Search and Optimal Production
I consider a model of directed search in which strategic sellers advertise general trading mechanisms. A mechanism determines the number of buyers that will get served and the side payments as a function of ex post realized demand. After observing these advertisements buyers simultaneously visit exactly one seller. Each buyer’s expected utility depends on the visiting decisions of other buyers. This dependence becomes especially interesting since the buyers cannot coordinate their visiting strategies. Despite the presence of strategic interaction among the sellers all symmetric equilibria are constrained efficient but not payoff equivalent. Therefore, authorities should intervene in this type of market to redistribute surplus and not to improve efficiency. As markets grow infinitely large all equilibria yield the same profit. For the large market case I provide conditions under which only a very simple class of mechanisms is posted in equilibrium.directed search, efficiency, multiplicity of equilibrium
Asset Liquidity and International Portfolio Choice
We study optimal portfolio choice in a two-country model where assets represent claims on future consumption and facilitate trade in markets with imperfect credit. Assuming that foreign assets trade at a cost, agents hold relatively more domestic assets. Consequently, agents have larger claims to domestic over foreign consumption. Moreover, foreign assets turn over faster than domestic assets because the former have desirable liquidity properties, but represent inferior saving tools. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias coupled with higher turnover rates of foreign over domestic assets.
Mixing and condensation in a wet granular medium
We have studied the effect of small amounts of added liquid on the dynamic
behavior of a granular system consisting of a mixture of glass beads of two
different sizes. Segregation of the large beads to the top of the sample is
found to depend in a nontrivial way on the liquid content. A transition to
viscoplastic behavior occurs at a critical liquid content, which depends upon
the bead size. We show that this transition can be interpreted as a
condensation due to the hysteretic liquid bridge forces connecting the beads,
and provide the corresponding phase diagram.Comment: submitted to PR
A Tractable Model of Indirect Asset Liquidity
Assets have “indirect liquidity” if they cannot be used as media of exchange, but can be traded to obtain a medium of exchange (money) and thereby inherit monetary properties. This essay describes a simple dynamic model of indirect asset liquidity, provides closed form solutions for real and nominal assets, and discusses properties of the solutions. Some of these are standard: assets and money are imperfect substitutes, asset demand curves slope down, and money is not always neutral. Other properties are more surprising: prices are flexible but appear sticky, and an increase in the supply of indirectly liquid assets can decrease welfare. Because of its simplicity, the model can be useful as a building block inside a larger model, and for teaching concepts from monetary theory
The Strategic Determination of the Supply of Liquid Assets
We study how the strategic interaction of liquid-asset suppliers depends on the financial market
conditions that determine asset liquidity. In our model, two asset suppliers try to profit
from the liquidity services their assets confer. Asset liquidity is indirect in the sense that assets
can be sold for money in over-the-counter (OTC) secondary markets. These secondary markets
are segmented and customers will be drawn to the market where they expect to find the best
terms. Understanding this, asset-suppliers play a differentiated Cournot game, where product
differentiation here stems from differences in OTC microstructure. We find that small differences
in OTC microstructure can induce very large differences in the relative liquidity of two
assets. Asset demand curves can slope upward for even modest degrees of increasing returns in
the matching technology. And if one asset supplier has an exogenous advantage over another,
the favored agent may want to strategically increase asset supply for the purpose of driving
competitors out of the secondary market altogether
A Tractable Model of Indirect Asset Liquidity
Assets have “indirect liquidity” if they cannot be used as media of exchange,
but can be traded to obtain a medium of exchange (money) and thereby
inherit monetary properties. This essay describes a simple dynamic model of indirect
asset liquidity, provides closed form solutions for real and nominal assets,
and discusses properties of the solutions. Some of these are standard: assets are
imperfect substitutes, asset demand curves slope down, and money is not always
neutral. Other properties are more surprising: prices are flexible but appear sticky,
and an increase in the supply of indirectly liquid assets can decrease welfare. Because
of its simplicity, the model can be useful as a building block inside a larger
model, and for teaching concepts from monetary theory
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