We construct an endogenous growth model in which bank runs occur with positive probability in equilibrium. In this setting, a bank run has a permanent effect on the levels of the capital stock and of output. In addition, the possibility of a run changes the portfolio choices of depositors and of...

We study optimal government policy in an economy where (i) search frictions create a coordination problem and generate multiple Pareto-ranked equilibria and (ii). The government finances the provision of a public good by taxing trade. The government must choose the tax rate before it knows which...

We study the Green and Lin (2003) model of financial intermediation with two new features: traders may face a cost of contacting the intermediary, and consumption needs may be correlated across traders. We show that each feature is capable of generating an equilibrium in which some (but not all)...

Using private information and club theories, this paper develops a theory of firms in general equilibrium. Firms are defined to be assignments of technologies and agents to clubs. In equilibrium, firms form endogenously and multiple types may co-exist. We formulate the general equilibrium...

I study the limit rule for bilateral bargaining when agents recognize that the aggregate economy (influencing the match surplus) follows a dynamic process that randomly switches back and forth between a finite number of possible states. The rule derived in this paper is of special importance for...

In a canonical staggered pricing model, monetary discretion leads to multiple private sector equilibria. The basis for multiplicity is a form of policy complementarity. Specifically, prices set in the current period embed expectations about future policy, and actual future policy responds to...

State-dependent pricing models are now an operational framework for quantitative business cycle analysis. The analysis in Ball and Romer [1991], however, suggests that such models may be rife with multiple equilibria: in their static model price adjustment is always characterized by...

The Sharpe-Linter two parameter Capital Asset Pricing Model (CAPM) has been the basis for an extraordinary amount of theoretical and empirical work. As originally developed, the CAPM did not explicitly account for the effects of uncertain inflation on asset prices.

This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign a unique prediction to each possible...

We investigate the mapping from individual to aggregate labor supply using a general equilibrium heterogeneous-agent model with an incomplete market. The nature of heterogeneity among workers is calibrated using wage data from the PSID. The gross worker flows between employment and nonemployment...