This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. Financial intermediaries provide insurance to households against a liquidity...

Staggered price and staggered wage contracts are commonly viewed as similar mechanisms in generating persistent real effects of monetary shocks. In this paper, we distinguish the two mechanisms in a dynamic stochastic general equilibrium framework. We show that, although the dynamic price...

This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. Financial intermediaries provide insurance to households against a liquidity...

We develop a theory of valuation of payoff streams in infinite-horizon sequential markets and discuss implications of this theory for equilibrium under various portfolio constraints. We study the nature of asset price bubbles in light of this theory. We show that there cannot be equilibrium...

We prove there exists and analyze a strategy that minimizes the cost of hedging a liability stream in infinite-horizon incomplete security markets with a type of constraints that feasible portfolio strategies form a convex cone. We provide a theorem that extends Stiemke Lemma to over cone...

A central challenge to monetary business cycle theory is to find a solution to the problem of persistence in the real effect of monetary shocks. Previous research has identified separately specific factors and intermediate inputs as two promising mechanisms for generating the persistence in a...

This paper analyzes a two-country general equilibrium model with multiple stages of production and sticky prices. Working through the cross-country input-output relations and endogenous price stickiness, the model generates the observed patterns in international aggregate comovements following...

Economic models are meant to provide a framework to describe real-world economic activities. In principle, how well a model performs this task can be evaluated by how close the model’s simulated activities track the observed ones. A necessary .rst step in simulating a model is to choose values...

Recent empirical studies reveal that monetary shocks cause persistent fluctuations in inflation and aggregate output. In the literature, few mechanisms have been identified to generate such persistence. In this paper, we propose a new mechanism that does so. Our model features an input-output...

In many models of financial intermediation, markets reduce welfare because they limit the amount of risk-sharing intermediaries can offer. In this paper we study a model in which markets also promote investment in a productive technology. A trade-off between risk sharing and growth arises...