The finding of Feldstein and Horioka (1980) that domestic saving and domestic investment are highly correlated across countries despite the rapid globalization and liberalization of financial markets in recent decades has been regarded as a Puzzle or Paradox. However, in this paper, we show that...

This paper studies a modern monetary economy: trade in both goods and securities relies on money provided by intermediaries. While money is valued for its liquidity, its creation requires costly leverage. Inflation, security prices and the transmission of monetary policy then depend on the...

This chapter puts forward a manual for how to setup and solve a continuous time model that allows to analyze endogenous (1) level and risk dynamics. The latter includes (2) tail risk and crisis probability as well as (3) the Volatility Paradox. Concepts such as (4) illiquidity and liquidity...

Stablecoins rise to meet the demand for safe assets in decentralized finance. Stablecoin issuers transform risky reserve assets into tokens of stable values, deploying a variety of tactics. To address the questions on the viability of stablecoins, regulations, and the initiatives led by large...

Financial intermediaries issue the majority of liquid securities, and nonfinancial firms have become net savers, holding intermediaries' debt as cash. This paper shows that intermediaries' liquidity creation stimulates growth -- firms hold their debt for unhedgeable investment needs -- but also...

In this article we derive a microfounded model of money demand under uncertainty built on intertemporally optimizing risk-averse households. Deriving a complete solution of the optimization problem taking the intertemporal budget constraint into account where linearization procedures in our...

Stablecoins rise to meet the demand for safe assets in decentralized finance. Stablecoin issuers transform risky reserve assets into tokens of stable values, deploying a variety of tactics. To address the questions on the viability of stablecoins, regulations, and the initiatives led by large...

The growth of peer-to-peer exchanges and the blockchain technology has led to a proliferation of cryptocurrencies and to a massive increase in the number of investors who actually negotiate digital money. Cryptocurrencies trade at prices which is mainly driven by investor sentiment, becoming a...

Central banks repo market operations and liquidity infusions occasion a structural liquidity mismatch in bank balance sheets and increase the dependence on central bank liquidity. This paper argues for what I term “Circular Monetary Economics”, an approach to monetary policy that seeks to...

The interaction of debt and economic performance has been getting more at-tention over the last few years. However, models making provision for debt are still out-numbered by models completely ignoring it. This paper is the first one to analyze therelationship between household debt (in the form...