September 2021 – “Micro Foundations for Macro and Monetary Economics” by Randall Wright (Wisconsin)

When is it efficient to use money, or other assets, as a payment instruments, either as media of exchange or as collateral for deferred settlement? To discuss this, we need a framework with explicit frictions (e.g., spatial or temporal separation; limited commitment; imperfect information). Institutions like money, collateralized credit, banking, etc. are clearly not captured well by standard GE theory. Search theory is the natural approach because it has agents trading with each other at terms they choose. In this setting we can ask how frictions impede the process of exchange and how the above-mentioned institutions may ameliorate the problem. The claim is that frictions matter for theory, for understanding data, and for policy analysis.

Course description – Slides 12345


Future Lectures

December 2021 (tentative) – “OTC Market Theory” by Pierre-Olivier Weill (UCLA) and Ben Lester (Philly Fed)

Modern financial markets are fragmented: whether by choice or necessity, investors often trade in Over-the-Counter (OTC) markets instead of all-to-all continuous auctions. Examples of assets that trade mostly in OTC markets include bonds, various types of derivatives, repos and federal funds loans. Over the last two decades OTC markets have been at the center of several pressing regulatory debates regarding liquidity and financial stability. This class will offer an introduction to continuous-time search-and-matching models commonly used to study OTC markets. We will review theory as well as empirical evidence. We will work within a unified theoretical framework, based on Hugonnier, Lester, and Weill (2021).

May 2022 – “Decentralized-Market Design: Advances and Open Problems” by Marzena Rostek (Wisconsin)

I will review recent advances in the literature on financial market design. Special focus will be on results and models motivated by new data and new questions concerning the role of market fragmentation and imperfect competition. The lecture will highlight a common analytic framework for static, dynamic, centralized, and decentralized markets. I will discuss open problems.