We study economies with multiple assets that are valued both for their return and liquidity. Exchange occurs in decentralized markets with frictions making a medium of exchange essential. Some assets are better suited for this role because they are more liquid - more likely to be accepted in...

In McLean and Postlewaite (2002), we analyzed pure exchange economies with asymmetrically informed agents. We defined a notion of informational size and showed that, when the aggregate information of all agents resolves nearly all the uncertainty regarding the state of nature, the conflict...

This paper studies inference in a continuous-time game where an agent’s decision to quit an activity depends on the participation of other players. In equilibrium, similar actions can be explained not only by direct influences, but also by correlated factors. Our model can be seen as a...

In this paper we address the following question: To what extent is the hypothesis that voters vote “ideologically” (i.e., they always vote for the candidate who is ideologically “closest” to them) testable or falsifiable? We show that using data only on how individuals vote in a single...

We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine...

Recently, Galí and others find that technological progress may be contractionary: a favorable technology shock reduces hours worked in the short run. We ask whether this observation is robust in disaggregate data. According to our VAR analysis of 458 four-digit U.S. manufacturing industries for...

This paper discusses methods for evaluating the impacts of social programs prior to their implementation. Ex ante evaluation is useful for designing programs that achieve some optimality criteria, such as maximizing impact for a given cost. This paper illustrates through several examples the use...

A large empirical literature documents a rise in wage inequality in the American economy. It is silent on whether the increase in inequality is due to greater heterogeneity in the components of earnings that are predictable by agents or whether it is due to greater uncertainty faced by agents....

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified....

This paper compares two methods for undertaking likelihood-based inference in dynamic equilibrium economies: a Sequential Monte Carlo filter proposed by Fernández-Villaverde and Rubio-Ramírez (2004) and the Kalman filter. The Sequential Monte Carlo filter exploits the nonlinear structure of...