In this paper, I study the optimal inflation rate in a sticky price economy in which workers are heterogeneous in labor productivity and wage changes are subject to asymmetric adjustment costs. The model calibrated to U.S. micro wage data implies downward nominal wage rigidity (DNWR). The optimal inflation rate is substantially higher than stated in the literature in the presence of worker heterogeneity. A key to understanding the result is that DNWR causes an inefficient cross-sectional allocation of labor as well as inefficient aggregate dynamics, enlarging the "grease of the wheels" effect of inflation.
{"title":"Revisiting the Optimal Inflation Rate with Downward Nominal Wage Rigidity: The Role of Heterogeneity","authors":"Tomohide Mineyama","doi":"10.2139/ssrn.3195437","DOIUrl":"https://doi.org/10.2139/ssrn.3195437","url":null,"abstract":"In this paper, I study the optimal inflation rate in a sticky price economy in which workers are heterogeneous in labor productivity and wage changes are subject to asymmetric adjustment costs. The model calibrated to U.S. micro wage data implies downward nominal wage rigidity (DNWR). The optimal inflation rate is substantially higher than stated in the literature in the presence of worker heterogeneity. A key to understanding the result is that DNWR causes an inefficient cross-sectional allocation of labor as well as inefficient aggregate dynamics, enlarging the \"grease of the wheels\" effect of inflation.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73058054","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes panic buying of storable consumer goods, using a dynamic inventory-adjustment model with heterogeneous consumers. Even if consumers are fully rational, the anticipation of a temporary increase in consumer shopping costs (caused by a disaster itself or a state of emergency) can trigger an upward spiral of demand for stockpiling and result in serious panic buying. Our model articulates how panic buying prevents an efficient allocation of storable goods due to a coordination failure and significantly harms the consumers' welfare. Government policies such as taxes on purchases and direct distribution of necessities can curb panic buying and enhance social welfare. We also find that the timing of government interventions crucially influences their effectiveness.
{"title":"A Dynamic Model of Rational 'Panic Buying'","authors":"Shunya Noda, Kazuhiro Teramoto","doi":"10.2139/ssrn.3721706","DOIUrl":"https://doi.org/10.2139/ssrn.3721706","url":null,"abstract":"This paper analyzes panic buying of storable consumer goods, using a dynamic inventory-adjustment model with heterogeneous consumers. Even if consumers are fully rational, the anticipation of a temporary increase in consumer shopping costs (caused by a disaster itself or a state of emergency) can trigger an upward spiral of demand for stockpiling and result in serious panic buying. Our model articulates how panic buying prevents an efficient allocation of storable goods due to a coordination failure and significantly harms the consumers' welfare. Government policies such as taxes on purchases and direct distribution of necessities can curb panic buying and enhance social welfare. We also find that the timing of government interventions crucially influences their effectiveness.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85650684","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite blockchain based cryptoassets trading since 2009, there has been a functional gap between on-chain transactions and trust based centralized exchanges. Uniswap, a decentralized exchange, bridges this gap. Uniswap’s constant product automated market maker enables the trading of blockchain tokens without relying on market makers, bids or asks. This reimagines conventional financial market structure in ways that challenge regulation, and increases market completeness as any size of volume can be traded at any time in a predictable way. We apply ARDL and VAR methodologies to 154 days of Ether-Tether trading pair from the Uniswap V2 exchange. We find that liquidity providers and arbitrageurs ensure the ratio of reserves match the trading pair price, and therefore Uniswap can be an effective financial market.
{"title":"Uniswap and the Emergence of the Decentralized Exchange","authors":"Yuen C Lo, F. Medda","doi":"10.2139/ssrn.3715398","DOIUrl":"https://doi.org/10.2139/ssrn.3715398","url":null,"abstract":"Despite blockchain based cryptoassets trading since 2009, there has been a functional gap between on-chain transactions and trust based centralized exchanges. Uniswap, a decentralized exchange, bridges this gap. Uniswap’s constant product automated market maker enables the trading of blockchain tokens without relying on market makers, bids or asks. This reimagines conventional financial market structure in ways that challenge regulation, and increases market completeness as any size of volume can be traded at any time in a predictable way. We apply ARDL and VAR methodologies to 154 days of Ether-Tether trading pair from the Uniswap V2 exchange. We find that liquidity providers and arbitrageurs ensure the ratio of reserves match the trading pair price, and therefore Uniswap can be an effective financial market.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82124707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We document that leased capital accounts for about 20% of the total productive physical assets used by U.S. public listed firms, and this proportion is even higher among small and financially constrained firms - over 40%. However, operating lease has been recorded as an off-balance-sheet item until the recent IFRS 16 lease accounting rule change (effective from 1 January 2019). Therefore, leased capital is an important ''unmeasured'' capital which leads to a significant mis-measurement in firms' capital productivity, and in quantifying capital misallocation (Hsieh and Klenow, 2009). In this paper, we argue that leasing is an important mitigation channel of credit-constraint-induced capital misallocation. First, we develop a general equilibrium model with heterogeneous firms, collateral constraint and an explicit buy versus lease decision to demonstrate a novel economic mechanism: the possibility for firms to rent capital when they are financially constrained mitigates capital misallocation. Second, we empirically show that ignoring leased capital and its mitigation effect leads to a significant overestimate of capital misallocation.
{"title":"Leasing as a Mitigation Channel of Capital Misallocation","authors":"Kai Li, Yiming Xu","doi":"10.2139/ssrn.3719658","DOIUrl":"https://doi.org/10.2139/ssrn.3719658","url":null,"abstract":"We document that leased capital accounts for about 20% of the total productive physical assets used by U.S. public listed firms, and this proportion is even higher among small and financially constrained firms - over 40%. However, operating lease has been recorded as an off-balance-sheet item until the recent IFRS 16 lease accounting rule change (effective from 1 January 2019). Therefore, leased capital is an important ''unmeasured'' capital which leads to a significant mis-measurement in firms' capital productivity, and in quantifying capital misallocation (Hsieh and Klenow, 2009). In this paper, we argue that leasing is an important mitigation channel of credit-constraint-induced capital misallocation. First, we develop a general equilibrium model with heterogeneous firms, collateral constraint and an explicit buy versus lease decision to demonstrate a novel economic mechanism: the possibility for firms to rent capital when they are financially constrained mitigates capital misallocation. Second, we empirically show that ignoring leased capital and its mitigation effect leads to a significant overestimate of capital misallocation.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86237221","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The regulatory framework of Basel III features joint requirements on bank capital and liquidity. I study such requirements by developing a general equilibrium model with bank runs in a global game framework. The model highlights the role of noisy information for studying liquidity and shows that bank runs are inevitable. Risk shifting induces excessive leverage and insufficient liquidity, causing an inefficiently high crisis probability. Imposing one requirement only causes risk migration: banks respond by taking more risk in another area, which warrants joint requirements. The design of the optimal joint requirements depends crucially on the model's general equilibrium effect.
{"title":"Bank Runs, Prudential Tools and Social Welfare in a Global Game General Equilibrium Model","authors":"Daisuke Ikeda","doi":"10.2139/ssrn.3192939","DOIUrl":"https://doi.org/10.2139/ssrn.3192939","url":null,"abstract":"The regulatory framework of Basel III features joint requirements on bank capital and liquidity. I study such requirements by developing a general equilibrium model with bank runs in a global game framework. The model highlights the role of noisy information for studying liquidity and shows that bank runs are inevitable. Risk shifting induces excessive leverage and insufficient liquidity, causing an inefficiently high crisis probability. Imposing one requirement only causes risk migration: banks respond by taking more risk in another area, which warrants joint requirements. The design of the optimal joint requirements depends crucially on the model's general equilibrium effect.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87197710","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we analytically examine firms’ joint decisions to affect the informativeness of their key performance indicators (KPIs) and the accessibility of their supplementary disclosures (e.g., MD&A) when it is costly for investors to analyze the latter. We show that while disclosure accessibility can help investors extract information in supplementary disclosure to assess the informativeness of reported KPIs, its usefulness can also endogenously limit its supply. We analyze how the equilibrium level of disclosure accessibility is affected by the degree of information asymmetry between a firm and its investors, the accuracy of mandatory disclosure, and the degree of disclosure complexity. Our analyses provide a framework to evaluate policies and proposals aimed at improving investors’ understanding of firm disclosure.
{"title":"The Usefulness and Endogenous Supply of Disclosure Accessibility","authors":"Qi Chen, Carlos Corona, Yun Zhang","doi":"10.2139/ssrn.3294745","DOIUrl":"https://doi.org/10.2139/ssrn.3294745","url":null,"abstract":"In this paper, we analytically examine firms’ joint decisions to affect the informativeness of their key performance indicators (KPIs) and the accessibility of their supplementary disclosures (e.g., MD&A) when it is costly for investors to analyze the latter. We show that while disclosure accessibility can help investors extract information in supplementary disclosure to assess the informativeness of reported KPIs, its usefulness can also endogenously limit its supply. We analyze how the equilibrium level of disclosure accessibility is affected by the degree of information asymmetry between a firm and its investors, the accuracy of mandatory disclosure, and the degree of disclosure complexity. Our analyses provide a framework to evaluate policies and proposals aimed at improving investors’ understanding of firm disclosure.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77719743","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We examine the unexplored effects on art markets of artist death (asset supply constraints), collectors' wealth (background risk) and forgery risk (risk of investment fraud), under short-sale constraints and risk aversion. Speculative bubbles emerge and have the form of an option strangle (a put option and a call option), in which strike prices are affected by art supply constraints and the association of the artworks' emotional value with both collectors' wealth and forgery, while the options' underlying asset is the stochastic heterogeneous beliefs of agents. We show that speculative bubbles increase with four elements: art supply constraints; a more negative correlation between collectors' wealth and the artworks' emotional value; a more positive relationship between forgery and the artworks' emotional value; and more heterogeneous beliefs. These four sources of speculation increase the expected turnover rate; however, they also augment the variance of speculative bubbles, which generates price discounts (i.e. risk premiums) for holding artworks. Consequently, the net impact of speculation is not necessarily increased art prices. This study not only contributes to the art market literature, but also to studies about speculative bubbles in other financial markets under heterogeneous beliefs, short-sale constraints and risk-averse investors, since we additionally consider the simultaneous effect of asset supply constraints, investors' background risk and the risk of investment fraud.
{"title":"Speculative Bubbles under Supply Constraints, Background Risk and Investment Fraud in the Art Market","authors":"A. Bernales, Lorenzo Reus, Víctor Valdenegro","doi":"10.2139/ssrn.3336282","DOIUrl":"https://doi.org/10.2139/ssrn.3336282","url":null,"abstract":"Abstract We examine the unexplored effects on art markets of artist death (asset supply constraints), collectors' wealth (background risk) and forgery risk (risk of investment fraud), under short-sale constraints and risk aversion. Speculative bubbles emerge and have the form of an option strangle (a put option and a call option), in which strike prices are affected by art supply constraints and the association of the artworks' emotional value with both collectors' wealth and forgery, while the options' underlying asset is the stochastic heterogeneous beliefs of agents. We show that speculative bubbles increase with four elements: art supply constraints; a more negative correlation between collectors' wealth and the artworks' emotional value; a more positive relationship between forgery and the artworks' emotional value; and more heterogeneous beliefs. These four sources of speculation increase the expected turnover rate; however, they also augment the variance of speculative bubbles, which generates price discounts (i.e. risk premiums) for holding artworks. Consequently, the net impact of speculation is not necessarily increased art prices. This study not only contributes to the art market literature, but also to studies about speculative bubbles in other financial markets under heterogeneous beliefs, short-sale constraints and risk-averse investors, since we additionally consider the simultaneous effect of asset supply constraints, investors' background risk and the risk of investment fraud.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75938673","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study Bitcoin (BTC) trading at the CME and four settlement spot exchanges that transact $146 million per day in the BTC/USD pair. Spot market median trade sizes are under $1,300 but exceed $18,000 on the CME. Bid-ask spreads average 0.0298%.Trade sizes of over $1 million move markets by less than 1%. 2.5% of trades and 15.5% of cancellations on Coinbase take place within 50 milliseconds. Bid-ask spreads exceed 0.8% for only 226 seconds. Most executions trade-through better quotes, with estimated losses of $36 million. The CME leads price discovery. BTC leads ETH price adjustment.
{"title":"Bitcoin Spot and Futures Market Microstructure","authors":"Saketh Aleti, Bruce Mizrach","doi":"10.2139/ssrn.3459111","DOIUrl":"https://doi.org/10.2139/ssrn.3459111","url":null,"abstract":"We study Bitcoin (BTC) trading at the CME and four settlement spot exchanges that transact $146 million per day in the BTC/USD pair. Spot market median trade sizes are under $1,300 but exceed $18,000 on the CME. Bid-ask spreads average 0.0298%.Trade sizes of over $1 million move markets by less than 1%. 2.5% of trades and 15.5% of cancellations on Coinbase take place within 50 milliseconds. Bid-ask spreads exceed 0.8% for only 226 seconds. Most executions trade-through better quotes, with estimated losses of $36 million. The CME leads price discovery. BTC leads ETH price adjustment.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76583136","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper proposes a decomposition for the total trade deficit of a country by using implications of a dynamic trade model. It is shown that the total trade deficit of a country can be decomposed into changes due to its effective terms of trade, its relative trade costs, and its macroeconomic developments with respect to its export partners. The implications for bilateral trade are estimated using both imports and exports data for 188 countries, and the decomposition of total trade deficit is achieved for each country. Empirical results show evidence for heterogeneity across countries regarding the decomposition of trade deficits, suggesting alternative policy tools to rebalance trade at the country level. A cross-country investigation further suggests that relative trade costs have contributed the most to the heterogeneity of trade imbalances.
{"title":"Accounting for Trade Deficits","authors":"H. Yilmazkuday","doi":"10.2139/ssrn.3232433","DOIUrl":"https://doi.org/10.2139/ssrn.3232433","url":null,"abstract":"This paper proposes a decomposition for the total trade deficit of a country by using implications of a dynamic trade model. It is shown that the total trade deficit of a country can be decomposed into changes due to its effective terms of trade, its relative trade costs, and its macroeconomic developments with respect to its export partners. The implications for bilateral trade are estimated using both imports and exports data for 188 countries, and the decomposition of total trade deficit is achieved for each country. Empirical results show evidence for heterogeneity across countries regarding the decomposition of trade deficits, suggesting alternative policy tools to rebalance trade at the country level. A cross-country investigation further suggests that relative trade costs have contributed the most to the heterogeneity of trade imbalances.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73318373","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I examine some political economy aspects of the capital-labor split. In a game-theoretic general equilibrium model, rent-seekers attempt to appropriate the output of manufacturing firms on the offensive end, while such firms safeguard their income on the defensive end. Then, the presence of imperfect property rights is a breeding ground for social conflict and has two indirect consequences. First, it evens out changes in the gross (before-social-conflict) labor and capital shares of total output that are caused by changes in the aggregate factor endowments, leading to more rigid equilibrium factor shares. Second, if social conflict is more labor-intensive than manufacturing, weaker property rights lead to a larger equilibrium labor share.
{"title":"Social Conflict, Property Rights, and the Capital-Labor Split","authors":"C. Stefanadis","doi":"10.2139/ssrn.3674524","DOIUrl":"https://doi.org/10.2139/ssrn.3674524","url":null,"abstract":"I examine some political economy aspects of the capital-labor split. In a game-theoretic general equilibrium model, rent-seekers attempt to appropriate the output of manufacturing firms on the offensive end, while such firms safeguard their income on the defensive end. Then, the presence of imperfect property rights is a breeding ground for social conflict and has two indirect consequences. First, it evens out changes in the gross (before-social-conflict) labor and capital shares of total output that are caused by changes in the aggregate factor endowments, leading to more rigid equilibrium factor shares. Second, if social conflict is more labor-intensive than manufacturing, weaker property rights lead to a larger equilibrium labor share.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83422858","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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