Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing...

The Federal Reserve’s 'balance-sheet normalization', which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in...

This is a survey of the basic theoretical foundations of intertemporal asset pricing theory. The broader theory is first reviewed in a simple discrete-time setting, emphasizing the key role of state prices. The existence of state prices is equivalent to the absence of arbitrage. State prices,...

This chapter describes conditions for the existence of general monetary equilibrium in a simple setting and discusses the role of money in general equilibrium theory. The principal contribution of general equilibrium theory has been its axiomatic validation of the benchmark model of price...

General equilibrium theory is applied wholesale to obtain a theory of value for security markets. The modern theory of value for security markets extends general equilibrium theory in various ways: (1) it explicitly treats general multiperiod trading opportunities under uncertainty and in...

Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing...