This paper examines the effects of expected inflation on the responsiveness of output to nominal disturbances in the framework of a localized markets model. The mechanism described in the theoretical part of the paper is that expected inflation has a positive effect on the transaction frequency,...

This paper reports an empirical test of a price dispersion equation, using data on the U.S. after World War II. The equation, derived elsewhere from aversion of the partial information-localized market models, relates price dispersion to the magnitude of changes in the aggregate disturbances. In...

A price dispersion equation is tested with data from the German hyper-inflation. The equation is derived from a version of Lucas' (1973) and Barro's (1976) partial information-localized market models. In this extension, different excess demand elasticities across commodities imply a testable...

An important "empirical regularity" is the strong positive effect of money shocks on output and employment. One strand of business cycle theory relates this finding to temporary confusions between absolute and relative price changes. These models predict positive output effects of unperceived...

Market innovations following the financial reforms of the early 1980s relaxed collateral constraints on household borrowing. The present paper examines the contribution of this development to the macroeconomic stabilization that occurred shortly thereafter. The model combines collateral...

This paper characterizes the labor supply and borrowing of a household facing collateral requirements that limit its debt and compel it to accumulate equity in its durable goods stock. The household's discount rate exceeds the market rate of interest, so it would otherwise finance increased...