We study two dynamic models of payments systems. The ...rst is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare. A payments system with period-by-period settlement in outside money improves on decentralized exchange using currency by reducing average cash balances and the average holding p...

The ...rst setup we study is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare. A payments system with period-by-period settlement in outside money improves on decentralized exchange. An e¢cient allocation is supported by a payments system where settlement is not imposed. In the second mode...

This paper studies competitive equilibria of a production economy with aggregate productivity shocks. There is a continuum of consumers who face borrowing constraints and individual labor endowment shocks. The dynamic economy is described in terms of sequences of aggregate distributions. The existence of competitive equilibrium is proven and a recursive characterization is established. In parti...

This paper studies competitive equilibria of a production economy with aggregate productivity shocks. There is a continuum of consumers who face borrowing constraints and individual labor endowment shocks. The dynamic economy is described in terms of sequences of aggregate distributions. The existence of sequential competitive equilibria is proven and a recursive characterization is established...

We study a dynamic principal-agent relationship with adverse selection and limited commitment. We show that when the relationship is subject to productivity shocks, the principal may be able to improve her value over time by progressively learning the agent’s private information. She may even achieve her first best payoff in the long-run. The relationship may also exhibit path dependence, with ...

This paper analyzes the existence of recursive equilibria in a class of convex growth models with incomplete markets. Households have identical CRRA-preferences, production displays constant returns to scale with respect to physical and human capital, and all markets are competitive. There are aggregate productivity shocks that affect the aggregate returns to physical and human capital investme...

This paper studies asset pricing in a setting where idiosyncratic risks in labor productivities are uninsurable due to limited commitment. Firms provide insurance to workers using long-term contracts but neither side can commit to these relationships. Under the optimal contract, sufficiently adverse shocks to worker productivity are uninsured. In general equilibrium, exposure to down-side tail ...

In this paper, we measure the welfare costs/gains associated with financial market incompleteness in a monetary union. To do this, we build on a two-country model of a monetary union with sticky prices subject to asymmetric productivity shocks. For most plausible values of price stickiness, we show that asymmetric shocks under incomplete financial markets give rise to a lower volatility of nati...

The pace of business dynamism as measured by indicators such as job reallocation has declined in recent decades in the U.S., and theory suggests that this may have implications for productivity. The declining dynamism in sectors like Retail Trade disproportionately accounted for these trends in the 1980s and 1990s, and was productivity enhancing. In contrast, the pace of reallocation in High-Te...

Abstract We construct a tractable neoclassical growth model that generates Pareto’s law of income distribution and Zipf’s law of firm size distribution from idiosyncratic, firm-level productivity shocks. CEOs invest in risk-free assets as well as their own firms’ risky stocks, through which their assets and incomes depend on firm-level shocks. Using the model, we evaluate how changes in tax rat...