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Jel Classification:D62 

Who Sees the Trades? The Effect of Information on Liquidity in Inter-Dealer Markets

Dealers, who strategically supply liquidity to traders, are subject to both liquidity and adverse selection costs. While liquidity costs can be mitigated through inter-dealer trading, individual dealers? private motives to acquire information compromise inter-dealer market liquidity. Post-trade information disclosure can improve market liquidity by counteracting dealers? incentives to become better informed through their market-making activities. Asymmetric disclosure, however, exacerbates the adverse selection problem in inter-dealer markets, in turn decreasing equilibrium liquidity ...
Staff Reports , Paper 892

Working Paper
The Economics of Platforms in a Walrasian Framework

We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The economy is Pareto effcient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts that state both the number and composition of platform users. Using the Walrasian equilibrium concept, the sum of type-specific fees paid cover platform costs. Given the Pareto efficiency of our environment, we ...
International Finance Discussion Papers , Paper 1280

Working Paper
Macroprudential Policy with Leakages

The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such concerns affect the design of optimal regulatory policy in a workhorse model in which pecuniary externalities call for macroprudential taxes on debt, but with the addition of a novel constraint that financial regulators lack the ability to enforce taxes on a subset of agents. While regulated agents reduce risk taking in response to debt taxes, unregulated agents react to the ...
Working Papers , Paper 754

Working Paper
Terms-of-Trade and Counterterrorism Externalities

This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation?s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the ?small-country? level, thus compounding its over provision of these measures. By contrast, the developing ...
Working Papers , Paper 2017-17

Working Paper
Information and Inequality in the Time of a Pandemic

We introduce two types of agent heterogeneity in a calibrated epidemiological search model. First, some agents cannot afford to stay home to minimize virus exposure. Our results show that poor agents bear most of the epidemic’s health costs. Furthermore, we show that when a larger share of agents fail to change their behavior during the epidemic, a deeper recession is possible. Second, agents develop symptoms heterogeneously. We show that for diseases with a higher share of asymptomatic cases, even when less lethal, health and economic outcomes are worse. Public policies such as testing, ...
Working Papers , Paper 202025

Working Paper
The Distributional Effects of COVID-19 and Mitigation Policies

This paper develops a quantitative life cycle model in which economic decisions impact the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on ...
Globalization Institute Working Papers , Paper 400

Working Paper
The Distributional Effects of COVID-19 and Optimal Mitigation Policies

This paper develops a quantitative heterogeneous agent–life cycle model with a fully integrated epidemiological model in which economic decisions affect the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to study the distributional consequences and effectiveness of two mitigation policies: a stay-at-home subsidy that subsidizes reduced hours worked and a stay-at-home order that limits outside hours. First, the stay-at-home subsidy is preferred because it reduces deaths by more and output by less, leading to a larger average welfare ...
Globalization Institute Working Papers , Paper 400

Cournot Fire Sales

In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. Cournot competition can overcorrect the inefficiently high borrowing in a standard model of levered real investment. In contrast, Cournot competition can exacerbate the inefficiently low liquidity in a standard model of financial portfolio choice. Implications for welfare and regulation are ...
Staff Reports , Paper 837

Working Paper
Congestion, Agglomeration, and the Structure of Cities

Supersede WP 13-25. Congestion costs in urban areas are significant and clearly represent a negative externality. Nonetheless, economists also recognize the production advantages of urban density in the form of positive agglomeration externalities. The long-run equilibrium outcomes in economies with multiple correlated but o setting externalities have yet to be fully explored in the literature. Therefore, I develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities. I then estimate the structural parameters of the model using a ...
Working Papers , Paper 16-13


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