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Working Paper
Financial Frictions, the Housing Market, and Unemployment
Petrosky-Nadeau, Nicolas; Branch, William A.; Rocheteau, Guillaume (2014-11)
We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms? market power in the goods market. A calibrated version of the model under adaptive learning can account for ...
Working Paper Series , Paper 2014-26

Working Paper
Costly Information Intermediation as a Natural Monopoly
Pinheiro, Roberto; Monte, Daniel (2017-11-16)
In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different ...
Working Papers (Old Series) , Paper 1721

Working Paper
Understanding the Long-Run Decline in Interstate Migration: Online Appendix
Schulhofer-Wohl, Sam; Kaplan, Greg (2015-06-01)
This appendix contains eight sections. Section 1 gives technical details of how we calculate standard errors in the CPS data. Section 2 discusses changes in the ACS procedures before 2005. Section 3 examines demographic and economic patterns in migration over the past two decades, in more detail than in the main paper. Section 4 examines the cross-sectional variance of location-occupation interactions in earnings when we define locations by MSAs instead of states. Section 5 describes alternative methods to estimate the variance of location-occupation interactions in income. Section 6 measures ...
Working Papers , Paper 725

Working Paper
Lending Relationships and Optimal Monetary Policy
Bethune, Zachary; Wong, Russell; Rocheteau, Guillaume; Zhang, Cathy (2020-09-25)
We construct and calibrate a monetary model of corporate finance with endogenous formation of lending relationships. The equilibrium features money demands by firms that depend on their access to credit and a pecking order of financing means. We describe the mechanism through which monetary policy affects the creation of relationships and firms' incentives to use internal or external finance. We study optimal monetary policy following an unanticipated destruction of relationships under different commitment assumptions. The Ramsey solution uses forward guidance to expedite creation of new ...
Working Paper , Paper 20-13

Working Paper
Flipping the Housing Market
Tse, Chung-Yi; Leung, Charles Ka Yui (2017-01-01)
We add arbitraging middlemen -- investors who attempt to profit from buying low and selling high -- to a canonical housing market search model. Flipping tends to take place in sluggish and tight, but not in moderate, markets. There is the possibility of multiple equilibria. In one equilibrium, most, if not all, transactions are intermediated, resulting in rapid turnover, a high vacancy rate, and high housing prices. In another equilibrium, few houses are bought and sold by middlemen. Turnover is slow, few houses are vacant, and prices are moderate. Moreover, flippers can enter and exit en ...
Globalization Institute Working Papers , Paper 301

Working Paper
Training and Search on the Job
Lentz, Rasmus; Roys, Nicolas (2015-10-30)
The paper studies human capital accumulation over workers? careers in an on the job search setting with heterogenous firms. In renegotiation proof employment con- tracts, more productive firms provide more training. Both general and specific training induce higher wages within jobs, and with future employers, even conditional on the future employer type. Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis ...
Working Papers , Paper 2016-25

Working Paper
Mechanics of Linear Quadratic Gaussian Rational Inattention Tracking Problems
Fulton, Chad (2017-11-03)
This paper presents a general framework for constructing and solving the multivariate static linear quadratic Gaussian (LQG) rational inattention tracking problem. We interpret the nature of the solution and the implied action of the agent, and we construct representations that formalize how the agent processes data. We apply this infrastructure to the rational inattention price-setting problem, confirming the result that a conditional response to economics shocks is possible, but casting doubt on a common assumption made in the literature. We show that multiple equilibria and a social cost ...
Finance and Economics Discussion Series , Paper 2017-109

Working Paper
Turnover Liquidity and the Transmission of Monetary Policy
Zhang, Shengxing; Lagos, Ricardo (2016-05-03)
We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence.
Working Papers , Paper 734

Working Paper
More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets
Nosal, Ed; Wright, Randall; Wong, Yuet-Yee (2014-11-01)
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

Report
Trade dynamics in the market for federal funds
Afonso, Gara M.; Lagos, Ricardo (2012-02-01)
We use minute-by-minute daily transaction-level payments data to document the cross-sectional and time-series behavior of the estimated prices and quantities negotiated by commercial banks in the interbank market. We study the frequency and volume of trade, the size distribution of loans, the distribution of bilateral rates, and the intraday dynamics of the reserve balances held by commercial banks. We find evidence of the importance of the liquidity provision achieved by commercial banks that act as de facto intermediaries of funds.
Staff Reports , Paper 549

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