Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and a complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances. Competitive...

This paper introduces agent heterogeneity, liquidity, and endogenous default to a DSGE framework. Our model allows for a comprehensive assessment of regulatory and monetary policy, as well as welfare analysis in the different sectors of the economy. Due to liquidity and endogenous default, the...

We present comprehensive evidence in support of giving liquidity equal standing to size, value/growth, and momentum as investment styles, as defined by Sharpe (1992). First, we show that financial market liquidity, as identified by stock turnover, is an economically significant indicator of...

We analyzed default likelihood of North-American corporate obligors in 1995-2014 using Moody's DRD quarterly data for both public and private borrowers. Emergency actions by the lender of last resort (LOLR) during 2008-2009 were a novelty so the impact on credit quality of bank portfolios and...

Introducing default and limited collateral into general equilibrium allows for a theoery of endogenous contracts, ..

We prove the existence of monetary equilibrium in a finite horizon economy with production. We also show that if agents expect the monetary authority to significantly decrease the supply of bank money available for short term loans in the future, then the economy will fall into a liquidity trap...

In a multiperiod economy with incomplete markets and assets with payoff depending on the price history (e.g., asset and derivatives), we show that in order to get endowment generic existence of an equilibrium it is not needed to alter settlement features such as when payments are made and when...

High frequency arbitrage opportunities arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs. Hence,...

High frequency arbitrage opportunities sometimes arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs....

This paper studies banks' liquidity provision in the Lagos and Wright model of monetary exchanges. With aggregate uncertainty we show that banks sometimes exhaust their cash reserves and fail to satisfy their depositors' need of consumption smoothing. The banking panics can be eliminated by the...