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Working Paper
Collateralized Debt Networks with Lender Default
Chang, Jin-Wook (2019-11-26)
The Lehman Brothers' 2008 bankruptcy spread losses to its counterparties even when Lehman was a lender of cash, because collateral for that lending was tied up in the bankruptcy process. I study the implications of such lender default using a general equilibrium network model featuring endogenous leverage, endogenous asset prices, and endogenous network formation. The multiplex graph model has two channels of contagion: a counterparty channel of contagion and a price channel of contagion through endogenous collateral price. Borrowers diversify their lenders because of the counterparty risk, ...
Finance and Economics Discussion Series , Paper 2019-083

Working Paper
Relative price dispersion: evidence and theory
Menzio, Guido; Rudanko, Leena; Kaplan, Greg; Trachter, Nicholas (2016-02-29)
REVISED: 8/1/18: We use a large data set on retail pricing to document that a sizable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers? attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store and low-valuation buyers who are ...
Working Papers , Paper 16-6

Report
Misinformation in Social Media: The Role of Verification Incentives
Cisternas, Gonzalo; Vásquez, Jorge (2022-08-01)
We develop a model of a platform featuring producers of fake news as well as users who can share content and verify it at a cost. Since users supply news to other users, their actions affect fake news prevalence and strategic complementarities can arise: high levels of verification can lead to low prevalence of fake content, in turn inducing more unverified sharing that sustains high levels of verification. Equilibria in this market then arise as intersection points between a standard supply curve and a novel correspondence that generalizes a demand function to account for the users’ ...
Staff Reports , Paper 1028

Working Paper
The Roles of Price Points and Menu Costs in Price Rigidity
Knotek, Edward S. (2019-11-12)
Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using scanner data, I note two empirical facts: (1) price points, embodied in nine-ending prices, account for approximately two-thirds of prices; and (2) at the conclusion of sales, post-sale prices return to their pre-sale levels more than three-fourths of the time. I construct a model that nests roles for menu costs and price points and estimate model variants. Excluding the two facts yields ...
Working Papers , Paper 19-23

Working Paper
Macroeconomic Implications of Uniform Pricing
Daruich, Diego; Kozlowski, Julian (2021-01-29)
We compile a new database of grocery prices in Argentina. We find uniform pricing both within and across regions—i.e., prices almost do not vary within stores of a chain. In line with uniform pricing, prices in stores of chains operating in one region react to changes in regional employment, while prices in multi-region chains do not. Using a quantitative regional model with multi-region firms and uniform pricing, we find a one-half smaller elasticity of prices to a regional than an aggregate shock. This result highlights that some caution may be necessary when using regional shocks to ...
Working Papers , Paper 2019-024

Report
Regulating Decentralized Systems: Evidence from Sanctions on Tornado Cash
Brownworth, Anders; Durfee, Jon; Lee, Michael Junho; Martin, Antoine (2024-08-01)
Blockchain-based systems are run by a decentralized network of participants and are designed to be censorship-resistant. We use sanctions imposed by the U.S. Department of Treasury on Tornado Cash (TC), a smart contract protocol, to study the impact and effectiveness of regulation in decentralized systems. We document an immediate and lasting impact on TC following the sanction announcement, measured by market reaction, transaction volume, and diversity of users. Still, net flows into TC contracts recover to and surpass pre-announcement levels for most pools, supporting viability of TC. ...
Staff Reports , Paper 1112

Working Paper
Noisy information, distance and law of one price dynamics across US cities
Crucini, Mario J.; Tsuruga, Takayuki; Shintani, Mototsugu (2014-11-01)
Using US micro price data at the city level, we provide evidence that both the volatility and the persistence of deviations from the law of one price (LOP) are rising in the distance between US cities. A standard, two-city, stochastic equilibrium model with trade costs can predict the relationship between volatility and distance but not between persistence and distance. To account for the latter fact, we augment the standard model with noisy signals about the state of nominal aggregate demand that are asymmetric across cities. We further show that the main predictions of the model continue to ...
Globalization Institute Working Papers , Paper 216

Working Paper
Embedded Supervision: How to Build Regulation into Blockchain Finance
Auer, Raphael (2019-10-01)
The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market?s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled ...
Globalization Institute Working Papers , Paper 371

Report
Who bears the cost of a change in the exchange rate? The case of imported beer
Hellerstein, Rebecca (2004-02-01)
This paper quantifies the welfare effects of a change in the nominal exchange rate using the example of the beer market. I estimate a structural econometric model that makes it possible to compute manufacturers' and retailers' pass-through of a nominal exchange-rate change, without observing wholesale prices or firms' marginal costs. I conduct counterfactual experiments to quantify how the change affects domestic and foreign firms' profits and domestic consumer welfare. The counterfactual experiments show that foreign manufacturers bear more of the cost of an exchange-rate change than do ...
Staff Reports , Paper 179

Working Paper
The Effects of Competition in the Retail Gasoline Industry
Taylor, Reid; Muehlegger, Erich (2025-03-05)
We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the ...
Working Papers , Paper 2509

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