We study the trade of indivisible goods using credit, divisible money and divisible assets in a frictional market. We show how indivisibility matters for equilibria. Bargaining generates a price that is not linked to nominal interest rates, dividend value of the asset, or the number of active buyers. To reestablish this connection, we consider price posting with competitive search. We provide c...

Trading frictions in financial markets affect more long-term than short-term bonds, generating an upward-sloping yield curve. Long-term financing is expensive economies with higher trading so firms choose to borrow and invest shorter horizons lower productivity projects. The theory guides a new identification of the slope liquidity spread data. We measure calibrate model for United States, coun...

The challenge for stabilization policy presented by the COVID-19 pandemic stems above all from disruption of circular flow payments, resulting in a failure what Keynes (1936) calls “effective demand.” As consequence, economic activity many sectors can be inefficiently low, and interest-rate cannot eliminate distortions—not because limit on extent to which interest rates reduced, but reductions ...

We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines agents’ confidence give rise to persistent liquidity trap episodes. Insights from widely studied fundamental-driven traps are not useful guide for enhancing welfare this model. Raising the inflation target, appointing an inflation-conservative central banker, or allowing use of governm...

Optimal communication to a group often entails a trade-off between precision of information conveyed and common understanding (or approximate common knowledge) of the information within the group. We argue that an understanding of this trade-off is central in many contexts, including central bank communication and the design of accounting standards, as well as understanding the design of langua...

This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign reserves approximate a critical level. Strong empirical support for our model is obtained by a probi...

We study the representative consumer’s risk attitude and efficient risk-sharing rules in a singleperiod, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual cons...

A univariate real-valued function is said to be completely monotone if it takes positive values and alternate the signs of its higher order derivatives, starting from everywhere negative first derivatives. We prove that the representative consumer’s discount factor of a continuous-time economy under uncertainty is a power function of some completely monotone function of time satisfying certain ...