This paper proposes an aggregative model of total factor productivity (TFP) in the spirit of Houthakker (1955-1956) . It considers a frictional labour market where production units are subject to idiosyncratic shocks and jobs are created and destroyed as in Mortensen and Pissarides (1994) . An aggregate production function is derived by aggregating across micro-production units in equilibrium. The level of TFP is explicitly shown to depend on the underlying distribution of shocks as well as on all the characteristics of the labour market as summarized by the job-destruction decision. The model is also used to study the effects of labour-market policies on the level of measured TFP.

It is folklore among monetary theorists that, under laissez faire, without ad hoc assumptions that favor money over bonds, there do not exist equilibria in which government-issued fiat money coexists with nominal default-free, interest-bearing government bonds with similar physical characteristics. This proposition is the basis for the strongest version of the rate-of-return-dominance puzzle. In this paper I show that if—as has been the case throughout monetary history—the physical object used as fiat money is heterogeneous in an extraneous attribute, then there exist equilibria in which money coexists with interest-bearing bonds.

This paper illustrates an alternative approach to modeling search frictions. Frictions are not assumed to exist, but are shown to arise endogenously as a distinctive feature of the set of equilibria that correspond to a particular range of parameter values. The model’s spatial structure and the agents’ moving decisions are explicitly spelled out, allowing the number of contacts that occur to depend on the way agents choose to locate themselves. An aggregate matching function is shown to exist, and its behavior with respect to changes in parameters such as distances between locations, the agents’ payoffs, and the sizes of the populations of searchers on each side of the market is completely characterized.

We develop a search-theoretic model of financial intermediation in an over-the-counter market and study how trading frictions affect the distribution of asset holdings and standard measures of liquidity. A distinctive feature of our theory is that it allows for unrestricted asset holdings, so market participants can accommodate trading frictions by adjusting their asset positions. We show that these individual responses of asset demands constitute a fundamental feature of illiquid markets: they are a key determinant of trade volume, bid–ask spreads, and trading delays—the dimensions of market liquidity that search-based theories seek to explain.

This paper investigates how market structure affects efficiency and several dimensions of liquidity in an asset market. To this end, we generalize the search-theoretic model of financial intermediation of Darrell Duffie et al. (2005) to allow for entry of dealers and unrestricted asset holdings.

We develop an equilibrium search model that incorporates job‐to‐job transitions, exhibits instances of replacement hiring, and conceptually distinguishes between job and worker flows. We propose a notion of competitive equilibrium for random‐matching environments and study the extent to which it achieves an efficient allocation of resources. The model can be used to study how the permanent incomes and employment states of individual workers evolve over time, the amount of worker turnover in excess of job reallocation, the lengths of job tenures and unemployment durations, and the size and persistence of changes in workers’ incomes following displacements or job‐to‐job transitions.

We formulate a generalization of the traditional medium‐of‐exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions with money strengthens the stance of sellers of goods and services in relation to intermediaries, and show this mechanism is operative even for sellers who never exercise the option to sell for money. These latent money demand considerations imply that in general, in contrast to current conventional wisdom in policy‐oriented research in monetary economics, monetary policy can remain effective through medium‐of‐exchange transmission channels—even in highly developed credit economies where the share of monetary transactions is negligible.

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.

This essay surveys the new monetarist approach to liquidity. Work in this literature strives for empirical and policy relevance, plus rigorous foundations. Questions include: What is liquidity? Is money essential in achieving desirable outcomes? Which objects can or should serve in this capacity? When can asset prices differ from fundamentals? What are the functions of commitment and collateral in credit markets? How does money interact with credit and intermediation? What can and should monetary policy do? The research summarized emphasizes the micro structure of frictional transactions, and studies how institutions like monetary exchange, credit arrangements, or intermediation facilitate the exchange process.