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Working Paper
Inflation, trade frictions, and productive activity in a multiple-matching model of money
This paper investigates the relationship between money growth, inflation, and productive activity in a general equilibrium model of search. The use of a multiple-matching technique, where trade frictions are captured by limited consumption variety, allows us to study price determination in a search-theoretic environment with divisible money and goods. In our basic framework, productive activity and matching in the goods market are endogenized by a time allocation decision of work and shopping effort. We find that in such an environment, a positive feedback between shopping and work effort ...
Working Paper
Inflation and economic activity in a multiple matching model of money
This paper investigates the relationship between money growth, inflation, and productive activity in a general equilibrium model where search frictions motivate the transactions role of money. The use of a multiple matching technique, where search frictions are captured by limited consumption variety, allows us to study price determination in a search-theoretic environment with divisible money and goods. We find that in such a setting, a positive feedback between work and shopping effort decisions create a channel by which inflation can positively influence real activity. This feature also ...
Journal Article
Is why we use money important?
Money and its underlying function as a medium of exchange play a central role in determining the course of macroeconomic activity. However, many of the models used to evaluate fundamental questions relating money and monetary policy to economic activity simply assume currency is valued and overlook the important properties of money that influence the way it is used and how its supply affects the economy. ; Search and matching models of money identify the characteristic assumptions for motivating the use of money in carrying out transactions by explicitly capturing the trade frictions that ...
Working Paper
Household credit and the monetary transmission mechanism
This paper evaluates the importance of household credit in the transmission of monetary policy and in explaining the positive correlation between money and credit services over the business cycle. It does so in the context of a general equilibrium framework of cash and household credit with two distinguishing features. There is an explicit financial sector with firms specializing in the production of credit services. Second, the financial sector also contains financial intermediaries who provide interest bearing accounts for households and loanable funds to credit producers. It is shown that ...
Journal Article
Can market-clearing models explain U.S. labor market fluctuations?
Throughout the past two decades, market-clearing models of the business cycle have been praised for their ability to explain key empirical features of the post-war U.S. business cycle. Real business cycle (RBC) theory shows that in a model grounded in microeconomic foundations, disturbances to national productivity can explain how aggregate variables such as GDP, consumption and investment behave over time, relative to each other. One of the primary weaknesses of the standard RBC model, however, is its inability to account for some important aspects of U.S. labor market fluctuations. In this ...
Working Paper
Money, credit, and the cyclical behavior of household investment
This paper focuses on a monetary explanation of two business cycle regularities: (i) business and household investment are positively correlated and procyclical and (ii) household investment tends to lead business investment. We construct a general equilibrium framework that explicitly incorporates a credit sector where real resources are employed in the production of costly household and business credit services. Financial intermediaries provide interest bearing accounts to households and loanable funds for credit producers. It is shown that liquidity effects from asymmetric monetary ...
Working Paper
Financial matchmakers in credit markets with heterogeneous borrowers
What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and where the composition of heterogeneous borrowers adjusts to satisfy equilibrium entry conditions. We find that enhanced liquidity causes entry by all borrowers and tends to benefit low-quality borrowers disproportionately. However, liquid credit markets may or may not be associated with higher output and ...