We build a theory of financial intermediation based on the premise that some investors are better able to figure out the trade motives of their counterparties in bilateral meetings—screening experts. We solve for the equilibrium market structure and study how information asymmetries stemming from heterogeneity in screening expertise shape up the core–periphery trade structure. In particular, the core of the market is populated by screening experts: they have the largest share of trade volume, they are actively engaged in middleman activity, and trade with the most counterparties. Using transaction-level micro-data and information disclosure requirements, we provide extensive evidence consistent only with our theory of financial intermediation.

We analyse dynamic general equilibrium models with more-or-less directed search by informed buyers and random search by uninformed buyers. This nests existing specifications and generates new insights. A quantitative application concerns the welfare cost of inflation, which is known to be quite high with pure random search and low with pure directed search. Our calibration implies the impact of inflation is fairly low, in part because, in addition to the usual costs, it provides benefits by more heavily taxing high-price sellers that inefficiently profit from exploiting the uninformed. Other applications analyse analytically and numerically changes in credit conditions and information.

We construct and calibrate a monetary model of corporate finance with endogenous formation of lending relationships. The equilibrium features money demands by firms that depend on their access to credit and a pecking order of financing means. We describe the mechanism through which monetary policy affects the creation of relationships and firms’ incentives to use internal or external finance. We study optimal monetary policy following an unanticipated destruction of relationships under different commitment assumptions. The Ramsey solution uses forward guidance to expedite creation of new relationships by committing to raise the user cost of cash gradually above its long-run value. Absent commitment, the user cost is kept low, delaying recovery.