Research

Abstract: A growing body of literature studies the rise in markups and firm market power. Nevertheless, little attention has been paid to the effects of credit and liquidity distribution on markups. We examine the interaction of access to credit and firm market power in a frictional monetary economy with noisy consumer search à la Burdett and Judd (1983). Money is subject to the inflation tax, while access to credit is uncertain. Credit affects the equilibrium price distribution through money demand and firms' pricing decision. We calibrate the model to U.S. data and find that higher access to credit increases the average markup for moderate levels of access to credit. Overall, access to credit in a microfounded model of liquidity demand provides a rationale for the increase in markups.

Abstract: Most monetary models assume inflation to be exogenously set by a monetary authority. I show that incentives to provide liquidity matter for achievable inflation rates. I build a model of inside and outside money where agents are subject to ex-post idiosyncratic preference shocks creating heterogeneous liquidity needs. Agents have access to a money issuance technology to insure against preference shocks at a fixed cost. I introduce seigniorage revenue as a monetary policy tool to (dis)incentivize inside money issuance and endogenize inflation. The model highlights a fundamental role of the demand for outside money in implementing inflation. When money issuance is relatively costly, a certain range of inflation or deflation rates is implementable and differs widely from environments with lump sum transfers or taxes. Contrary to conventional wisdom, reducing the money issuance cost shrinks the range of incentive-feasible inflation rates.

Abstract: In this paper we construct a two-country model of monetary exchange and bank credit to study resource allocation and risk sharing within a currency union. We study the market equilibrium that prevails when there is perfect integration of cross-border credit markets and when credit markets are fragmented, which prevents banks from engaging in cross-border lending activities. We find that credit market fragmentation yields a suboptimal allocation, both in terms of capital allocation and consumption risk sharing. We use this framework to study the implications of two supra-national policies when credit markets are fragmented: a common deposit insurance and a central-bank digital currency. While both policies improve consumption risk sharing, they differ in their effects on capital allocation.

We develop a model where consumers self-select into different electricity contracts based on heterogeneity in their willingness to pay, which varies over time. We characterize the demand for two contracts: (i) a fixed-price contract and (ii) a real-time pricing contract. We then derive the contract price equilibrium under two market structures that determine which firms set the fixed price: one with competitive retailers and another with a regulated monopoly. Under retail competition, selection effects make the fixed-price contract unprofitable, leading to the first-best outcome. In contrast, a regulated monopoly must account for consumers’ outside options, which can result in lower social welfare compared to a setting where real-time pricing is unavailable. Finally, we extend the model to explore cross-subsidies when consumer types are private information and discuss potential extensions to renewable integration and more complex consumer behaviors.

Payment privacy has become a central issue in Central Bank Digital Currency design. I build a simple two asset model of monetary exchange where assets have different privacy-preserving features. Privacy is modeled as the ability to keep past transactions private information.

I study a simple noisy search model à la Burdett and Judd 1983 with income distributions. I show how firms' optimal pricing decisions are affected by properties of the income distribution.