We study how the introduction of a central bank digital currency (CBDC) would affect the stability of the banking system. We present a model that captures a concern commonly raised in policy discussions: the option to hold CBDC can increase the incentive for depositors to run on weak banks. Our...

With the recent financial crisis, many financial intermediaries experienced strains created by declining asset values and a loss of funding sources. In reviewing these stress events, one notices that some arrangements appear to have been more stable — that is, better able to withstand shocks...

Many central banks implement monetary policy in a way that maintains a tight link between the stock of money and the short-term interest rate. In particular, their implementation procedures require that the supply of reserve balances be set precisely in order to implement the target interest...

Sunspot equilibrium and lottery equilibrium are two stochastic solution concepts for nonstochastic economies. We compare these concepts in a class of completely finite, (possibly) nonconvex exchange economies with perfect markets, which requires extending the lottery model to the finite case....

We study sunspot immunity in a dynamic monetary economy in which consumers are allowed to trade put and call option contracts on the general price level. We define the concept of strong sunspot immunity to characterize economies that have no sunspot equilibria regardless of the number of...

We analyze sunspot-equilibrium prices in nonconvex economies with perfect markets and a continuous sunspot variable. Our primary result is that every sunspot equilibrium allocation can be supported by prices that, when adjusted for probabilities, are constant across states. This result extends...