This paper proposes rules for the control of interbank rate volatility under different interest corridor systems when volatility stems from interbank market frictions. Friction-induced volatility will occur if there is heterogeneity in two dimensions (across banks and time) with respect to the...

Observed high-frequency prices are contaminated with liquidity costs or market microstructure noise. Using such data, we derive a new asset return variance estimator inspired by the market microstructure literature to explicitly model the noise and remove it from observed returns before...

The arrival of high-frequency traders (HFTs) coincided with the entry of new markets and, subsequently, strong fragmentation of the order flow. These trends might be related as new markets serve HFTs who seek low fees and high speed. New markets only thrive on competitive price quotes which...

Following the recent financial crisis, increasing the transparency of credit default swap (CDS) markets has been a popular goal among regulators. We examine how changes in the transparency of the CDS market can impact liquidity in the corresponding equity market. We first extend a model of...

This paper reports experiments motivated by ongoing controversies regarding tick size in markets. The minimum tick size in a market dictates discrete values at which bids and asks can be tendered by market participants. All transaction prices must occur at these discrete values, which are...

This paper examines how the degree of interbank competition affects real economic growth, growth patterns, and consumer welfare using a dynamical systems approach. Risk averse agents insure against idiosyncratic risk via deposit contracts that maximize bank profits. These contracts are derived...