This paper presents a model in which (1) fiat money has strictly positive value in the unique trembling hand equilibrium. This holds as each bank note is both: (a) a witness for the existence of some agent in the economy with debt, backed by collateral, and (b) the only matter that allows the...

A comprehensive theory of large strategic games with (socioeconomic and biological) traits (LSGT) has recently been presented in Khan et al. (2012, 2013), and we present a reformulation pertaining to large distributional games with traits (LDGT).

This article reconsiders the issue on stochastic bubbles first studied by Weil (1987) in an overlapping generations economy with idiosyncratic risks. Unlike Weil’s own result, stochastic bubbles can occur independently of the confidence level.

This paper shows that the empirically documented disinflationary nature of news shocks is consistent with the implications of a sensibly modified version of a New Keynesian model, even if capital is introduced to the model. The modification proposed in the current paper, however, is different...

We investigate the impact of news in the ECB and FED monetary policy announcements on daily changes in Euro interest rates. We document significant impacts of ECB announcements throughout the period but only until mid 2004 of FED announcements.

In New Keynesian models, Taylor rules move real rates in the same direction as the natural rate, but less than one-for-one. Permanent, positive technology shocks raise the natural rate—policy is expansionary and hours rise relative to the flexible price case.

In a recent paper, Adão et al. (2011), using a cash-in-advance framework, derive an interest rate rule that results in a unique monetary equilibrium. The resulting interest rate rule is forward looking and the interest rate responds positively to forecasts of future real activity and to...

Using data on 68 developing countries from 1979 to 2008 and controlling for a wide array of factors, this paper finds that a rise in the real interest rate increases the unemployment rate and decreases the employment rate. The magnitude of these effects is small. The results are robust to...

The coexistence puzzle is explained via an interaction between intermediary cost and uncertainty with regards to consumption trade. If a trade opportunity as a buyer is more likely to arise, ex-ante net return on bond at the margin would be negative up to a certain amount of transactions and,...

We study credible information transmission by a benevolent short-lived central bank. When externalities create a wedge between private and social welfare, the central bank has an incentive to misreport its information. Information transmission through monetary policy creates a distortion, thus,...