Working Papers

When Money Dies: The Dynamics of Speculative Hyperinflations 

How fast can a fiat money become valueless? In a continuous-time monetary economy with trading frictions and CRRA preferences, a fiat money under speculative hyperinflation dies in finite time. Its lifespan shrinks as distrust (measured by the distance to the highest equilibrium) increases and as liquidity needs become more frequent. Contrarily, high seller's market power, intense specialization, and active fiscal policies slow down the demise of money. If currencies compete, the times it takes for a speculative hyperinflation to trigger a dollarization, and for the full dollarization to be completed, vary with currency substitutability and rates of return.

Foundations of Market Power in Monetary Economies (Joint with Michael Choi)

We study the foundations of firms' market power in a continuous-time model where agents are price-makers who interact explicitly with each other. Market power arises from the existence of rents, the size of which depends on consumers' outside options, and firms' ability to appropriate these rents through rent seeking. We study how measures of market power (e.g., markups, concentration) are affected by search frictions, monetary policy, and self-fulfilling beliefs. As meeting speed becomes infinite, there exists a sequence of equilibria along which market power vanishes. But there can also exist equilibria where rents remain positive and firms behave as monopolists.