I am broadly interested in models of frictional markets with sound micro-foundations. Until now, I have studied their application to macroeconomic issues such as unemployment and monetary policy.
Joint with Guillaume Rocheteau, Tai-Wei Hu and Younghwan In
We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. According to this approach, which encompasses Nash and Kalai solutions as special cases, bilateral negotiations follow an agenda that partitions assets into bundles to be sold sequentially. The proceeds from asset sales are maximized when assets are sold one infinitesimal unit at a time. Gradual bargaining reduces asset misallocation and prevents market breakdowns. We apply our model to study rate-of-return di¤erences across assets with identical dividend streams, open-market operations, and the determination of the exchange rate between (crypto-)currencies.
Payment frictions and participation in over-the-counter markets
This paper studies the impact of payment frictions in over-the-counter trade with pairwise meetings and bargaining. I formalize participation on the extensive margin, with investors able to pick ex-ante the amount of assets they are willing to trade in a meeting. When credit is not feasible and money is the only means of payment, the market shuts down despite the presence of gains from trade. When credit is partially accessible, trade is restored and equilibrium features (i) endogenous heterogeneity in holdings, trade sizes and prices, and (ii) complementarity between money and credit. Absent credit, a similar role may be played by a sporadic access to a competitive (interdealer) market.
Do financial frictions shift the Beveridge curve?
I propose the deterioration of credit availability as a novel explanation for the outwards shift of the Beveridge curve in the US following the Great Recession. The model implements a twist in Wasmer and Weil (2004): instead of looking for a loan to finance their vacancy costs, firms borrow to cover a fixed cost of hiring required to convert a match into a hire. This timing allows labor market efficiency to drop following a productivity shock. I build a monthly index of loan approval and conduct an empirical exercise that confirms the relevance of the credit channel.Interactive Beveridge curve (desktop only)