Banks produce short-term debt for transactions and storing value. The value of bank money must not vary over time so agents can easily trade this debt at par. This requires that no agent finds it profitable to produce costly private information about the bank's loans. To produce safe liquidity...

Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between elastic credit supply (due to leveraged borrowing) and persistent credit demand (due to...

Privately-produced safe debt is designed so that there is no adverse selection in trade. But in some macro states, here the onset of the pandemic, it becomes profitable for some agents to produce private information, and then agents face adverse selection when they trade the debt (i.e., it...