Research

Publications

 "Endogenous Liquidity and Volatility" (with Guillaume Rocheteau)

Journal of Economic Theory, Vol. 210, June 2023, 105652

Abstract: Is asset liquidity a source of price volatility? We answer this question within a continuous-time, New Monetarist economy under extrinsic uncertainty where the role of an asset to finance expenditure shocks depends on its pledgeability. If assets are intrinsically valuable and pledgeability is exogenous, then their prices are invariant to extrinsic uncertainty – unlike environments with discrete-time pricing that can feature sunspot equilibria. We derive conditions under which extrinsic uncertainty matters when pledgeability is endogenous and varies with the asset price or its rate of return. In the latter case, we link sunspot equilibria to deterministic cycles.

Working Papers

 "Hysteresis in Asset Liquidity"

Abstract: Does the acceptability of an asset exhibit hysteresis? With a continuous-time New Monetarist model of asset liquidity dynamics, this paper answers yes. I describe asset acceptability as a slow-moving state variable—it increases as more sellers obtain the technology that allows them to accept the asset and decreases as some sellers lose their technology. With strategic complementarity, asset acceptability can exhibit hysteresis, which provides a novel explanation for the hysteresis in dollarization. The model explains the irreversible dollarization in Argentina from 1989 to 1998.

"Intermediaries, Inventories and Endogenous Dynamics in Frictional Markets" (with Chao Gu and Randall Wright)

Abstract: We study dynamics in frictional markets with inventories, focusing on models with intermediated trade, where middlemen buy assets or goods from sellers and sell them to buyers. Extending previous work, we include heterogeneous buyer valuations, and develop a characterization of equilibrium in terms of reservation trading strategies (homogeneous valuations imply bang-bang solutions with discontinuities that are awkward for the economics and mathematics). In continuous or discrete time, equilibria exist where market participation, trading strategies, liquidity, and other variables fluctuate as self-fulfilling prophecies. This is driven by strategic considerations, not increasing returns or related assumptions made in other models.

Work in Progress

"Dollarization and the Dynamics of Dollar  Adoption" 

"Rising Market Power in a Decentralized Economy"