8 Works

Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery

Jonathan Chiu & Thorsten V. Koeppl
We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses. The equilibrium response to such a policy is intricate as it creates an announcement...

Adoption Costs of Financial Innovation: Evidence from Italian ATM Cards

Kim Huynh, Philipp Schmidt-Dengler, Gregor W. Smith & Angelika Welte
The discrete choice to adopt a financial innovation affects a household’s exposure to inflation and transactions costs. We model this adoption decision as being subject to an unobserved cost. Estimating the cost requires a dynamic structural model, to which we apply a conditional choice simulation estimator. A novel feature of our method is that preference parameters are estimated separately, from the Euler equations of a shopping-time model, to aid statistical efficiency. We apply this method...

International Borrowing, Specialization and Unemployment in a Small, Open Economy

Patrick N. Osakwe & Shouyong Shi
Empirical evidence suggests that the unemployment rate and the export/GNP ratio are positively correlated with external debt across developing countries. This paper develops a dynamic model that provides an explanation for the aforementioned relationships. The central idea of our paper is that international borrowing affects unemployment and specialization patterns by unevenly changing the risk-sharing structure—across sectors—between firms and workers. The economy produces a domestic good and an export good and faces uncertainty in its terms...

Cyber Security and Ransomware in Financial Markets

Toni Ahnert, Michael Brolley, David Cimon & Ryan Riordan
Financial markets face the constant threat of cyber attacks. We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about clients’ vulnerability to cyber attacks and about the fees charged. We characterize which cyber attacks actors choose. We find that ransomware attacks are more successful than traditional attacks and that platforms underinvest in security when security is unobservable. Regulating security investment (e.g., minimum security...

PayTech and the D(ata) N(etwork) A(ctivities) of BigTech Platforms

Jonathan Chiu & Thorsten V. Koeppl
Why do BigTech platforms introduce payment services? Digital platforms often run business models where activities on the platform generate data that can be monetized off the platform. There is a trade-off between the value of such data and the privacy concerns of users, since platforms need to compensate users for their privacy loss by subsidizing activities. The nature of complementarities between data and payments determines whether and how payment services are provided. When data help...

Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory

Jonathan Chiu, Charles M. Kahn & Thorsten V. Koeppl
In this article, we use a simple stylized model of collateralized lending to analyze the value proposition and limitations of decentralized finance (DeFi). DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve financial inclusion. Limitations are the volatility of the crypto collateral and stablecoins used for settlement, the possible incompleteness of...

Debt-Relief Programs and Money Left on the Table: Evidence from Canada's Response to COVID-19

Jason Allen, Robert Clark, Shaoteng Li & Nicolas Vincent
During the COVID-19 pandemic, Canadian financial institutions offered debt-relief programs to help borrowers cope with job losses and economic insecurity. We consider the low take-up rates for these programs and suggest that to be effective, such programs must be visible and easy to use.

Empirical Likelihood Block Bootstrapping

Jason Allen, Allan W. Gregory & Katsumi Shimotsu
Monte Carlo evidence has made it clear that asymptotic tests based on generalized method of moments (GMM) estimation have disappointing size. The problem is exacerbated when the moment conditions are serially correlated. Several block bootstrap techniques have been proposed to correct the problem, including Hall and Horowitz (1996) and Inoue and Shintani (2006). We propose an empirical likelihood block bootstrap procedure to improve inference where models are characterized by nonlinear moment conditions that are serially...

Registration Year

  • 2022
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Resource Types

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Affiliations

  • Queen's University
    8
  • Bank of Canada
    8
  • Wilfrid Laurier University
    1
  • University of Vienna
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  • HEC Montréal
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