We study credible information transmission by a benevolent short-lived central bank. When externalities create a wedge between private and social welfare, the central bank has an incentive to misreport its information. Information transmission through monetary policy creates a distortion, thus,...

Clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short-term credit that participants clear periodically. We study efficient clearing arrangements for exchanges, where traders must clear with a clearinghouse, and for over-the-counter...

We compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, whereas the second framework relies only on open-market operations. We show that the Friedman rule cannot be implemented when the central bank uses standing...

The bankruptcy of Lehman Brothers in 2008 will certainly be featured in history books as one of the greatest financial failures so far, but it will also be recorded as yet another episode of the historically successful performance of clearing arrangements in ensuring the resiliency of markets....

The authors explain why central counterparties (CCPs) emerged historically. With standardized contracts, it is optimal to insure counterparty risk by clearing those contracts through a CCP that uses novation and mutualization. As netting is not essential for these services, it does not explain...

In this comment, the author extends Cavalcanti and Nosal's (2010) framework to include the case of perfectly divisible money and unrestricted money holdings. He shows that when trade takes place in Walrasian markets, counterfeits circulate and the Friedman rule is still optimal.

In a model with matching frictions, we provide conditions under which repurchase agreements (or repos) co-exist with asset sales. In a repo, the seller agrees to repurchase the asset at a later date at the agreed price. Absent bilateral trading frictions, repos have no role despite uncertainty...

reneging on obligations.

We study economies where improving the quality of institutions -- modelled as improving contract enforcement -- requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine...

We study the nature of monetary policy in a model where uncertainty can lead to a discrepancy between economic agents' beliefs and true fundamentals. Monetary policy transmits information about fundamentals. The public nature of this information can help agents to coordinate their decisions....