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Working Paper
Liquidity constraints in commercial loan markets with imperfect information and imperfect competition
This paper presents a simple general equilibrium model of the commercial loan market in which liquidity constraints arise endogenously because of imperfect information and imperfect competition. The information and market structure generate a discriminatory interest rate schedule and loan size restrictions, which we interpret as liquidity constraint phenomena. The model's predictions are consistent with actual lending policies observed in the commercial loan industry. Further, the lender and all borrowers are at least as well off under this solution as they would be if faced with any single ...
Journal Article
Looking forward : the role for government in regulating electronic cash
With the year 2000 rapidly approaching, stored-value cards are already popular in some countries and are being introduced into the United States by private companies. Stored-value cards are one form of electronic cash?electronic substitutes for paper currency. Digital cash (also known as cybercash or ecash) is the other form of electronic cash coming into use today. It consists of bits and bytes in cyberspace and substitutes for paper currency in transactions made over the Internet.> Someday privately issued electronic cash may be a common means of payment in the United States. Looking ...
Journal Article
Risks of identity theft: Can the market protect the payment system?
Identity theft has been a feature of financial markets for as long as alternatives have existed to cash transactions. But identity theft has recently occurred on a much larger scale. Data breaches often involve the apparent loss or acknowledged theft of the personal identifying information of thousands--or millions--of people. ; Identity theft poses risks, not only to individuals, but to the integrity and efficiency of the payment system--the policies, procedures, and technology that transfer information for authenticating and settling payments among participants. Identity theft can cause a ...
Working Paper
Money, banking, and capital formation
We consider a monetary growth model in which banks arise to provide liquidity. In addition, there is a government that issues not only money, but interest-bearing bonds; these bonds compete with capital in private portfolios. When the government fixes a constant growth rate for the money stock, we show that there can exist multiple nontrivial monetary steady states. One of these steady states is a saddle, while the other can be a sink. Paths approaching these steady states can display damped endogenous fluctuations, and development trap phenomena are common. Across different steady states, ...
Working Paper
Phillips curves, monetary policy, and a labor market transmission mechanism
This paper develops a general equilibrium monetary model with performance incentives to study the inflation-unemployment relationship. A long-run downward-sloping Phillips curve can exist with perfectly anticipated inflation because workers? incentive to exert effort depend on financial market returns. Consequently, higher inflation rates can reduce wages and stimulate employment. An upward-sloping or vertical Phillips Curve can arise instead, depending on agents? risk aversion and the possibility of capital formation. Welfare might be higher away from the Friedman rule and with a central ...
Working Paper
The effects of open market operations in a model of intermediation and growth
We examine a standard model of capital accumulation in which spatial separation and limited communication create a role for money and shocks to portfolio needs create a role for banks. In this context we examine the existence, multiplicity, and dynamical properties of monetary equilibria with positive nominal interest rates. Moderate levels of risk aversion can lead to the existence of multiple monetary steady states, all of which can be approached from a given set of initial conditions. In addition, even if there is a unique monetary steady state, monetary equilibria can be indeterminate, ...
Journal Article
Jobless recoveries and the wait-and-see hypothesis
In January 2005, after more than three years of sluggish employment growth, the U.S. economy finally recovered the jobs lost during the 2001 recession. Baffled by such a delayed rebound in payrolls, many speculated about the cause. Inevitably, observers compared the 2001 and 1991 recoveries, both widely considered to have been jobless. Schreft and Singh showed previously that one common feature of the first year of the jobless recoveries was the greater use of just-in-time employment practices. They also speculated that the greater availability of just-in-time employment practices contributed ...
Working Paper
A model of financial fragility
This paper presents a dynamic, stochastic game-theoretic model of financial fragility. The model has two essential features. First, interrelated portfolios and payment commitments forge financial linkages among agents. Second, iid shocks to investment projects? operations at a single date cause some projects to fail. Investors who experience losses from project failures reallocate their portfolios, thereby breaking some linkages. In the Pareto-efficient symmetric equilibrium studied, two related types of financial crises can occur in response. One occurs gradually as defaults spread, causing ...
Discussion Paper
Lessons from the History of the U.S. Regulatory Perimeter
Banking organizations in the United States have long been subject to two broad categories of regulatory standards. The first is permissive: a "positive" grant of rights and privileges, typically via a charter for a corporate entity, to engage in the business of banking.
Journal Article
Small business: The big picture of small business owners