Showing results 1 to 6 of approximately 6.(refine search)
Frictional Intermediation in Over-the-Counter Markets
We extend Duffie, G?arleanu, and Pedersen?s (2005) search theoretic model of over-the-counter (OTC) asset markets, allowing for a decentralized inter-dealer market with arbitrary heterogeneity in dealers? valuations or inventory costs. We develop a solution technique that makes the model fully tractable and allows us to derive, in closed form, theoretical formulas for key statistics analyzed in empirical studies of the intermediation process in OTC markets. A calibration to the market for municipal securities reveals that the model can generate trading patterns and prices that are ...
Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital
We study the determinants of lifetime earnings (LE) inequality in the U.S. by focusing on job ladder dynamics and on-the-job learning as sources of wage growth. Using administrative data, we document that i) lower LE workers change jobs more often, which is mainly driven by nonemployment; ii) average annual earnings growth for job stayers is similar, around 2% in the bottom two-thirds of the LE distribution, whereas for job switchers it rises with LE; iii) top LE workers enjoy around 10% average earnings growth regardless of job switching. We estimate a job ladder model with on-the-job ...
Monetary Policy, Hot Housing Markets and Leverage
Expansionary monetary policy can increase household leverage by stimulating housing liquidity. Low mortgage rates encourage buyers to enter the housing market, raising the speed at which properties can be sold. Because lenders can resell seized foreclosure inventory at lower cost in such a hot housing market, ex-ante they are comfortable financing a larger fraction of the house purchase. Consistent with this mechanism, this study documents empirically that both the housing sales rate and loan-to-value ratios increase after expansionary monetary policy. Calibrating a New Keynesian ...
Employment and Firm Heterogeneity, Capital Allocation, and Countercyclical Labor Market Policies
Many countries have large employment shares in micro and small firms that have limited access to formal financing and therefore rely on input credit. Such countries are mainly emerging and developing economies, whose business cycle dynamics are increasingly important for the global economy in light of the dramatic rise in international linkages and spillovers that have occurred over the last several decades. Emerging and developing economies implemented a host of countercyclical labor market policies amid the global financial crisis, but data limitations on high-frequency labor and job flows ...
Heterogeneity in Decentralized Asset Markets
We study a search and bargaining model of asset markets in which investors? heterogeneous valuations for the asset are drawn from an arbitrary distribution. We present a solution technique that makes the model fully tractable, and allows us to provide a complete characterization of the unique equilibrium, in closed form, both in and out of steady state. Using this characterization, we derive several novel implications that highlight the importance of heterogeneity. In particular, we show how some investors endogenously emerge as intermediaries, even though they have no advantage in contacting ...
Contingent Debt and Performance Pricing in an Optimal Capital Structure Model with Financial Distress and Reorganization
Building on the trade-off between agency costs and monitoring costs, we develop a dynamic theory of optimal capital structure with financial distress and reorganization. Costly monitoring eliminates the agency friction and thus the risk of inefficient liquidation. Our key assumption is that monitoring cannot be applied instantaneously. Rather, transitions between agency and monitoring are subject to search frictions. In the optimal contract, the firm seeks a monitoring opportunity whenever it is financially distressed, i.e., when the risk of liquidation is high. If a monitoring opportunity ...