Many existing theories of financial intermediation have difficulty explaining why financial activity can generate large real effects. This paper argues that the large real effects may reflect a multiplicity of equilibria. The multiple equilibria in this paper are generated by the dynamic...

What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and...

The welfare costs of dynamic factor taxes are analyzed in a dynamic general equilibrium model with heterogeneous endowments, abilities, and tastes. Conventional functional form restrictions yield formulas for the transition effects and marginal welfare costs of factor taxes. Heterogeneity...

We develop a simple analytical framework where the longevity of profit-maximizing firms requires costly resources. We show that a firm's longevity and value are positively related to the firm''s pricing power, cash reserves, honesty, and ratio of equity to debt financing.

This paper studies the phenomenon of mismatch in a decentralized credit market where borrowers and lenders must engage in costly search to establish credit relationships. Our dynamic general equilibrium framework integrates incentive based informational frictions with a matching process...

What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and...

This paper constructs a three-country, specific-factor, trade-theoretic model in which two of the countries are in conflict and where war effort is determined endogenously in a Nash equilibrium. The third country does not take part in the war, but trades with the warring countries. In the...