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Creator: Lagos, Ricardo and Rocheteau, Guillaume Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 408 Abstract:
We develop a search-theoretic model of financial intermediation and use it to study how trading frictions affect the distribution of asset holdings, asset prices, efficiency, and standard measures of liquidity. A distinctive feature of our theory is that it allows for unrestricted asset holdings, so market participants can accommodate trading frictions by adjusting their asset positions. We show that these individual responses of asset demands constitute a fundamental feature of illiquid markets: they are a key determinant of bid-ask spreads, trade volume, and trading delays—all the dimensions of market liquidity that search-based theories seek to explain.
This paper is an extension of Ricardo Lagos’s work while he was in the Research Department of the Federal Reserve Bank of Minneapolis.
Parola chiave: Execution delay, Liquidity, Trade volume, Bid-ask spread, and Search Soggetto: D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness and D10 - Household Behavior: General
Creator: Jagannathan, Ravi and Murray, Frank Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 229 Abstract:
It is well documented that on average, stock prices drop by less than the value of the dividend on ex-dividend days. This has commonly been attributed to the effect of tax clienteles. We use data from the Hong Kong stock market where neither dividends nor capital gains are taxed. As in the U.S.A. the average stock price drop is less than the value of the dividend; specifically, in Hong Kong the average dividend was HK $0.12 and the average price drop was HK $0.06. We are able to account for this both theoretically and empirically through market microstructure based arguments.
Parola chiave: Dividends, Asset pricing, Market microstructure, and Bid-ask spread Soggetto: G35 - Payout Policy and G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Creator: Lagos, Ricardo and Rocheteau, Guillaume Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 375 Abstract:
We investigate how trading frictions in asset markets affect portfolio choices, asset prices and efficiency. We generalize the search-theoretic model of financial intermediation of Duffie, Gârleanu and Pedersen (2005) to allow for more general preferences and idiosyncratic shock structure, unrestricted portfolio choices, aggregate uncertainty and entry of dealers. With a fixed measure of dealers, we show that a steady-state equilibrium exists and is unique, and provide a condition on preferences under which a reduction in trading frictions leads to an increase in the price of the asset. We also analyze the effects of trading frictions on bid-ask spreads, trade volume and the volatility of asset prices, and find that the asset allocation is constrained-inefficient unless investors have all the bargaining power in bilateral negotiations with dealers. We show that the dealers’ entry decision introduces a feedback that can give rise to multiple equilibria, and that free-entry equilibria are generically inefficient.
Parola chiave: Asset prices, Execution delay, Liquidity, Trade volume, Bid-ask spread, and Search Soggetto: G11 - Portfolio Choice; Investment Decisions, G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages, and G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Creator: Wallace, Neil Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 061 Abstract:
In this paper I describe a “monetary” system in which backing is provided for the government’s liabilities by way of contingent resort to taxes. The system has some of the features of a commodity money system with a large seignorage spread between bid and ask prices. It is studied within the context of a one-good, pure exchange model of two-period-lived overlapping generations in which, aside from various uniform boundedness assumptions, considerable diversity is allowed both within and across generations. Two results are established: (i) the existence of at least one perfect foresight competitive equilibrium, and (ii) the Pareto optimality of any such equilibrium.
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Parola chiave: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Soggetto: O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Hammill, James H. and Nelson, Clarence W. (Clarence Walford), 1924- Descrizione:
The Reserve-o-Meter was a tool used in presentations given by Clarence Nelson and James Hammill. From the August 6, 1993 presentation entitled Monetary Policy, Fiscal Policy and the Economy: What are Policy Goals and how does Policy Work, the Reserve-o-Meter is described as "an analog computer by which you can study the leverage or reserve-to-deposit multiplier for any bank." Included here are front and back images of the Reserve-o-Meter, the full presentation text and accompanying slides.
Creator: Bryant, John B. and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 189 Parola chiave: Prohibition, Government debt, Rate of return dominance, and Private currency Soggetto: E40 - Money and Interest Rates: General and E52 - Monetary Policy
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 260 Parola chiave: Nominal wages, Trade, Monetary payments, and Contract Soggetto: L14 - Transactional Relationships; Contracts and Reputation; Networks and J33 - Compensation Packages; Payment Methods
Creator: Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 270 Parola chiave: Crops, Feed grains, Federal grain programs , Agriculture, Feed prices, and Livestock Soggetto: Q18 - Agricultural Policy; Food Policy and H81 - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts