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Author:Nosal, Ed 

Working Paper
More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets

This paper generalizes Rubinstein and Wolinsky?s model of middlemen (intermediation) by incorporating production and search costs, plus more general matching and bargaining. This allows us to study many new issues, including entry, efficiency and dynamics. In the benchmark model, equilibrium exists uniquely, and involves production and intermediation for some parameters but not others. Sometimes intermediation is essential: the market operates iff middlemen are active. If bargaining powers are set correctly equilibrium is efficient; if not there can be too much or too little economic ...
Working Paper Series , Paper WP-2014-18

Working Paper
Monetary Policy Implementation With an Ample Supply of Reserves

Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply ...
Working Paper Series , Paper WP 2020-02

Journal Article
How well does the federal funds futures rate predict the future federal funds rate?

Contrary to popular belief, federal funds futures rates do not tell us precisely where the market thinks federal funds rates will be in the future. On average, futures rates overpredict future fed funds rates, and, depending on whether fed funds rates are falling or rising, the futures rate may consistently overestimate or underestimate the future fed funds rates. To obtain a reliable estimate of the future fed funds rate, one must adjust the fed funds futures rate appropriately to account for the bias and past movements of the fed funds rate.
Economic Commentary , Issue Oct

Discussion Paper
The 2007 Summer Workshop on Money, Banking and Payments: an overview

The 2007 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Cleveland this summer, as we have over the past several years. The following document summarizes and ties together the contributions presented at the workshop this year.
Policy Discussion Papers , Issue Dec

Journal Article
Optimal deposit contracts: do-it-yourself bank-run prevention for banks

The need for federal deposit insurance is often based on the claim that it prevents bank runs and makes the banking system more stable. But research shows that banks could prevent bank runs by constructing their deposit contracts appropriately, and, in the absence of deposit insurance, they would do so in their own self interest. Federal deposit insurance may be useful as insurance per se?protecting depositors against unforeseen accidents?but it should not be considered necessary for banking system stability.
Economic Commentary , Issue Jan

Working Paper
Monetary policy implementation with an ample supply of reserves

Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply ...
Working Paper Series , Paper WP-2020-02

Working Paper
Limited liability and the development of capital markets

We study the consequences of the introduction of widespread limited liability for corporations. In the traditional view, limited liability reduces transactions costs and enhances investment incentives for individuals and firms. But this view does not explain several important stylized facts of the British experience, including the slow rate of adoption of limited liability by firms in the years following legal reforms. We construct an alternative model that accounts for this and other features of the nineteenth century British experience. In the model, project risk is private information, and ...
Working Papers (Old Series) , Paper 0703

Working Paper
Bank Panics and Scale Economies

A bank panic is an expectation-driven redemption event that results in a self-fulfilling prophecy of losses on demand deposits. From the standpoint of theory in the tradition of Diamond and Dybvig (1983) and Green and Lin (2003), it is surprisingly di cult to generate bank panic equilibria if one allows for a plausible degree of contractual flexibility. A common assumption employed in the standard banking model is that returns are linear in the scale of investment. Instead, we assume the existence of a fixed investment cost, so that a higher risk-adjusted rate of return is available only if ...
Working Papers , Paper 2017-9

Working Paper
Gambling for Dollars: Strategic Hedge Fund Manager Investment

Hedge fund managers differ in ability and investors want to distinguish good ones from bad. Via the design of their investment strategies, better fund managers want to ease this inference problem while worse fund managers want to complicate it. We impose only the minimal restrictions on the nature the investment strategies that, on average, returns reflect the hedge fund manager?s ability and that returns be bounded from below, and solve for the set of equilibria that emerge. We then show that under a variety of equilibrium refinements, a unique equilibrium obtains. In this equilibrium, ...
Working Paper Series , Paper WP-2013-23

Working Paper
A strategic approach to hedging and contracting

This paper provides a new rationale for hedging that is based partly on noncompetitive behavior in product markets. The authors identify a set of conditions that imply that a firm may want to hedge. Empirically, these conditions are consistent with what is observed in the marketplace. The conditions are: 1) firms have some market power in their product market; 2) firms have limited liability; and 3) firms can contract to sell their output at a specified price before all factors that can affect their profitability are known. For some parameter specifications, however, the model predicts that ...
Working Papers (Old Series) , Paper 0119

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