We use an information-theoretic approach to describe changes in lending relationships between financial institutions around the time of the Lehman Brothers failure. Unlike previous work that conducts maximum likelihood estimation on undirected networks our analysis distinguishes between borrowers and lenders and looks for broader lending relationships (multi-bank lending cycles) that extend bey...

The most prominent characteristic of the Japanese yen/U.S. dollar nominal exchange rate in the post-Plaza Accord era is near random-walk behavior sharing a common stochastic trend with the two-country monetary base differential augmented with excess reserves. In this paper, we develop a simple two-country incomplete-market model equipped with domestic reserve markets to structurally investigate...

An investment officer at a community bank recently told me that he kept hearing and reading about “swap spreads” and “the swaps curve” and really didn’t know exactly what those things were. He was right to ask since a great deal of financial analysis these days relies on the swaps market as a source of information about expectations for interest rates, credit risk and bond market behavior. I wa...

This paper studies daily investor flows to and from each money market mutual fund during the period surrounding and including the money fund crisis of September 2008. We focus on the determinants of flows in the prime money fund category to shed light on the covariates of money fund runs, since this category was, by far, the most heavily impacted by the money fund crisis. We find that outflows ...

In general, the interest rate is not directly observable in the nancial market. Short term interest rates are quoted in the money market for maturities up to approximately one year, but longer term interest rates are traded only indirectly through the bond market. In this paper the spot interest rate is described by a bivariate stochastic differential equation state space model that gives rise ...

Friedman (1950) championed a shift from a fixed exchange rate regime (Bretton Woods) to a world of central bank issued floating currencies. Following Menger (1892) and Mises (1971), we see that the exchange-value of money lies in the original use-value of a commonly accepted medium of exchange. However, actors also incorporate their inter-temporal preferences in choosing a money. Not only their...

This paper reports findings from an experiment that implements the Lagos-Wright (2005) model of monetary exchange. We find that subjects generally avoid the autarkic equilibrium of that model and make trading decisions consistent with the model’s monetary equilibrium. Aliprantis, Camera and Puzzello (ACP, 2007) show that providing periodic access to centralized markets as in the Lagos and Wrigh...

A fair division problem with indivisible objects and money consists of a set of agents, a set of objects, a value matrix which shows the value of each agent for each object and a money endowment to be shared among agents. Each agent has a quasi-linear utility function over objects and money. A solution to a fair division problem is an allocation which assigns an object and a money share to each...

The introduction of the euro generated substantial interest in the impact of currency unions (CUs) on trade flows. Initial estimates suggested a tripling of trade, which gave rise to a literature in search of “more reasonable” CU effects. Theoretical derivations of the gravity model highlight, however that the CU literature neglects to control simultaneously for general equilibrium effects (mul...

We use the popular television show Mad Money hosted by Jim Cramer to test theories of attention and limits to arbitrage. Stock recommendations on Mad Money constitute attention shocks to a large audience of individual traders. We find that stock recommendations lead to large overnight returns which subsequently reverse over the next few months. The spike-reversal pattern is strongest among smal...