The authors use the framework of random matching games and develop a two-country model of the world economy in which two national currencies compete and may be circulated as media of exchange. There are multiple equilibria, which differ in the areas of circulation of the two currencies. In one...

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...

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...

We develop a model where: (i) banks take deposits and make investments; (ii) their liabilities facilitate third-party transactions. Other models have (i) or (ii), not both, although we argue they are intimately connected: we show that they both emerge from limited commitment. We describe an...

What determines which assets are used in transactions? We develop a framework where the extent to which assets are recognizable determines the extent to which they are acceptable in exchange--i.e. it determines their liquidity. Recognizability and liquidity are endogenized by allowing agents to...

What determines which assets are used in transactions? We develop a framework where the extent to which assets are recognizable determines the extent to which they are acceptable in exchange--i.e. it determines their liquidity. Recognizability and liquidity are endogenized by allowing agents to...