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Report
Fragility of Safe Asset Markets
In March 2020, safe asset markets experienced surprising and unprecedented price crashes. We explainhow strategic investor behavior can create such market fragility in a model with investors valuing safety,investors valuing liquidity, and constrained dealers. While safety investors and liquidity investors caninteract symbiotically with offsetting trades in times of stress, liquidity investors’ strategic interactionharbors the potential for self-fulfilling fragility. When the market is fragile, standard flight-to-safety canhave a destabilizing effect and trigger a “dash-for-cash” by ...
Working Paper
A Theory of Sticky Rents: Search and Bargaining with Incomplete Information
The housing rental market offers a unique laboratory for studying price stickiness. This paper is motivated by two facts: 1. Tenants? rents are remarkably sticky even though regular and expected recontracting would, by itself, suggest substantial rent flexibility. 2. Rent stickiness varies significantly across structure type; for example, detached unit rents are far stickier than large apartment unit rents. We offer the first theoretical explanation of rent stickiness that is consistent with these facts. In this theory, search and bargaining with incomplete information generates stickiness in ...