Guillaume Rocheteau 

 

 

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Working papers


Money and Competing Assets under Private Information

Appendices

This paper offers a monetary theory of asset liquidity---one that emphasizes the role of assets in payment arrangements---and it explores the implications of the theory for the relationship between assets' intrinsic characteristics and liquidity, and the effects of monetary policy on asset prices and welfare. The environment is a random-matching economy where fiat money coexists with a real asset, and no restrictions are imposed on payment arrangements. The liquidity of the real asset is endogenized by introducing an informational asymmetry in regard to its fundamental value. The model delivers the following insights. The illiquidity premium paid to the real asset tends to increase as the asset becomes riskier and more abundant. Monetary policy affects an asset's return when the quantity of the real asset is not too large and inflation is in some intermediate range. The model predicts a negative relationship between inflation and assets' expected returns.

 

More on the Threat of Counterfeiting

(Joint with Yiting Li)

We study counterfeiting of currency in a search-theoretic model of monetary exchange. In contrast to Nosal and Wallace (2007), we establish that counterfeiting does not pose a threat to the existence of a monetary equilibrium; i.e., a monetary equilibrium exists irrespective of the cost of producing counterfeits, or the ease with which genuine money can be authenticated. However, the possibility to counterfeit .at money can a¤ect its value, velocity, output and welfare, even if no counterfeiting occurs in equilibrium. We provide two extensions of the model under which the threat of counterfeiting can materialize: counterfeits can circulate across periods, and sellers set terms of trades in some matches. Policies that make the currency more costly to counterfeit or easier to recognize raise the value of money and society.s welfare, but the latter policy does not always decrease counterfeiting.


 

Crashes and recoveries in illiquid markets 

(Joint with Ricardo Lagos and Pierre-Olivier Weill), 2007

We study the dynamics of liquidity provision by dealers during an asset market crash, described as a temporary, negative shock to outside investors' aggregate asset demand. We consider a class of dynamic market settings where dealers can trade continuously with each other but trading between dealers and outside investors is subject to delays and involves bargaining. We derive conditions on fundamentals, such as preferences, market structure (dealers' bargaining strength, the magnitude of trading delays) and the characteristics of the market crash (abruptness, persistence) under which dealers provide liquidity to outside investors following a crash. We also determine the conditions for dealers' incentives to provide liquidity to be well aligned with society's interests. 
 

Signaling in a Model of Currency Circulation under Private Information

(joint with Ed Nosal and Richard Dutu), 2005

How does the imperfect recognizability of commodity money affect its production, terms of trade, and circulation? This paper develops a model where coins of different intrinsic values are minted to be used as a medium of exchange, and are subject to a private information problem. Our model offers a new perspective over existing analyses by allowing owners of coins to signal the quality of their asset holdings through the offer they make. The implications for velocity, output and welfare are examined.