Wisconsin School of Business

Randall Wright

Professor - Finance
Ray Zemon Professor of Liquid Assets

Randall Wright is the Ray Zemon Professor of Liquid Assets in the Department of Finance, Investment and Banking at the Wisconsin School of Business, as well as a Professor in Wisconsin’s Department of Economics. He previously held faculty positions at the University of Pennsylvania and Cornell, and was a National Fellow at Stanford’s Hoover Institution. He is currently a consultant for the Federal Reserve Banks of Minneapolis and Chicago, a Research Associate at the National Bureau of Economic Research, where he co-organizes the Macro Perspectives group, and a Fellow of the Econometric Society and Society for the Advancement of Economic Theory. He has a B.A. (Economics) from University of Manitoba, a Ph.D. (Economics) from University of Minnesota, and an M.A. (Honorary) from University of Pennsylvania.

Professor Wright is well known for his work on monetary, macro and labor economics, with over 100 publication. From 1998 to 2008, he was the Editor of International Economic Review, and is currently Associate Editor at Journal of Economic Theory and Advisory Editor at Macroeconomic Dynamics. He has won several awards for his research, and currently has the highest “degree centrality” in economics (basically, greatest number of coauthors).

Selected Published Journal Articles

Mattesini, F., Monnet, C., & Wright, R. (2013). Banking: A New Monetarist Approach.
Article AbstractAbstract: We study banking with minimal assumptions about who banks are or what they do. Our model is based on limited commitment. We show how it can be efficient for some agents to accept deposits and make delegated investments. This is so even if they have access to low return investments. The reason is their liabilities - claims on deposits - facilitate exchange between depositors and third parties. The predictions IC the theory are compared to the historical data.
Review of Economic Studies (80), 636-662.
Rocheteau, G., & Wright, R. (2013). Liquidity and Asset Market Dynamics.
Article AbstractWe study an economy with an essential role for liquid assets. The model can generate multiple stationary equilibria, across which asset prices, participation, stock market capitalization, output and welfare are positively related. Even when fundamentals are deterministic and time invariant, the model can generate a variety of non-stationary equilibria. This includes equilibria with price trajectories that resemble bubbles growing and bursting, as well as periodic, chaotic, and stochastic (sunspot) equilibria with recurrent market crashes. We analyze optimal liquidity provision. Sometimes it is e¢ cient to have enough liquid assets to satiate demand; other times it is better if liquidity is scarce.
Journal of Monetary Economics (60), 275-294. doi: 10.1016/j.jmoneco.2012.11.002.
Lester, B., Postlewaite, A., & Wright, R. (2012). Information, Liquidity, Asset Prices, and Monetary Policy.
Article AbstractWe study economies with multiple assets that are valued both for their return and their liquidity. Liquidity is modeled by having some trade occur in decentralized markets, with frictions, where certain assets are more likely to be accepted in trade. This is due to an information problem: while all agents recognize some assets, like currency, they are less sure about and hence less inclined to accept others. Recognizability is endogenized by letting agents invest in information, potentially generating multiple equilibria with different liquid- ity properties. We discuss implications for asset pricing and monetary policy. We show in particular that what looks like a cash-in-advance constraint is not invariant to policy. We also discuss some tentative implications for understanding recent ?financial market events, such as the prediction that small changes in the amount of, or in the cost of, information concerning asset quality can generate large negative responses in liquidity, output and welfare.
Review of Economic Studies (79), 1209-1238. doi: 10.1093/restud/rds003.
Head, Liu, Menzio, & Wright, R. (2012). Sticky Prices: A New Monetarist Approach. Journal of the European Economic Association (10), 939-973. doi: 10.1111/j.1542-4774.2012.01081.x.
Aruoba, S., Waller, C., & Wright, R. (2011). Money and Capital.
Article AbstractThe effects of money (anticipated inflation) on capital formation is a classic issue in macroeconomics. Previous papers adopt reduced-form approaches, putting money in the utility function, or imposing cash in advance, but using otherwise frictionless models. We follow instead a literature that tries to be explicit about the frictions making money essential. This introduces new elements, including a two-sector structure with centralized and decentralized markets, stochastic trading opportunities, and bargaining. These elements matter quantitatively and numerical results differ from findings in the reduced-form literature. The analysis also reduces a gap between microfounded monetary economics and mainstream macro.
Journal of Monetary Economics (58), 98-116. doi: 10.1016/j.jmoneco.2011.03.003.
Liu, L., Wang, L., & Wright, R. (2011). The "Hot Potato" Effect of Inflation.
Article AbstractConventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and this is a channel through which inflation affects velocity and welfare. Monetary theory with endogenous search intensity seems ideal for studying this. However, in standard models, inflation is a tax that lowers the surplus from monetary exchange and hence reduces search effort. We replace search intensity with a free entry (participation) decision for buyers - i.e., we focus on the extensive rather than intensive margin - and prove buyers always spend their money faster when inflation increases. We also discuss welfare.
Macroeconomic Dynamics (15), 191-216. doi: 10.1017/S1365100511000046.
Williamson, S., & Wright, R. (2011). New Monetarist Economics: Models. (3A), 25-96.
Lester, B., Postlewaite, A., & Wright, R. (2011). Liquidity and Information.
Article AbstractWe study how recognizability affects assets’ acceptability, or liquidity. Some assets, like U.S. currency, are readily accepted because sellers can easily recognize their value, unlike stock certificates, bonds or foreign currency, say. This idea is common in monetary economics, but previous models deliver equilibria where less recognizable assets are always accepted with positive probability, never probability 0. This is inconvenient when prices are determined through bargaining, which is difficult with private information. We construct models where agents reject outright assets that they cannot recognize, at least for some parameters. Thus, information frictions generate liquidity differences without overly complicating the analysis.
Journal of Money, Credit, and Banking (43), 355–377. doi: 10.1111/j.1538-4616.2011.00440.x.
Berentsen, A., Menzio, G., & Wright, R. (2011). Inflation and Unemployment in the Long Run.
Article AbstractWe study the long-run relation between money (inflation or interest rates) and unemployment. We document positive relationships between these variables at low frequencies. We develop a framework where money and unemployment are modeled using explicit microfoundations, providing a unified theory to analyze labor and goods markets. We calibrate the model and ask how monetary factors account for labor market behavior. We can account for a sizable fraction of the increase in unemployment rates during the 1970s. We show how it matters whether one uses monetary theory based on the search-and-bargaining approach or on an ad hoc cash-in-advance constraint
American Economic Review (101), 371-398. doi: 10.1257/aer.101.1.371.
Wright, R. (2010). A Uniqueness Proof for Monetary Steady State.
Article AbstractThe framework in Lagos and Wright (2005) [20] combining decentralized and centralized markets is used extensively in monetary economics. Much is known about that model, but there is a loose end: only under special assumptions about bargaining power or decentralized market preferences has it been shown that the monetary steady state is unique. For general decentralized market utility and bargaining, I prove uniqueness for generic parameters with fiat money, and for all parameters with commodity money. As a corollary, I get monotone comparative statics.
Journal of Economic Theory (145), 382-391. doi: 10.1016/j.jet.2009.11.004.
Guerrieri, V., Shimer, R., & Wright, R. (2010). Adverse Selection in Competitive Search Equilibrium.
Article AbstractWe study economies with adverse selection, plus the frictions in competitive search theory. With competitive search, principals post terms of trade (contracts), then agents choose where to apply, and they match bilaterally. Search allows us to analyze the effects of private information on both the intensive and extensive margins (the terms and probability of trade). There always exists a separating equilibrium where each type applies to a different contract. The equilibrium is unique in terms of payoffs. We provide an algorithm for constructing equilibrium. Three applications illustrate the usefulness of the approach, and contrast our results with those in standard contract and search theory.
Econometrica (78), 1823-1862. doi: 10.3982/ECTA8535.
Silviera, R., & Wright, R. (2010). Search and the Market for Ideas.
Article AbstractWe study a market where innovators, who are good at coming up with ideas, can sell them to entrepreneurs, who might be better at implementing them. The market is decentralized, with random matching and bargaining. Ideas are characterized by five salient features: they are indivisible; partially nonrival; intermediate inputs; subject to informational frictions; and difficult to collateralize. This last feature gives rise to a demand by entrepreneurs for liquidity. We determine which ideas get traded in equilibrium and compare this to the efficient outcome, emphasizing the impact of bargaining and liquidity considerations. Among other applications, we study how outcomes in the idea market affect the labor market.
Journal of Economic Theory (145), 1550-1573. doi: 10.1016/j.jet.2010.01.004.
Wright, R. (2010). New Monetarist Economics: Methods. (92), 265-302.
Jean, K., Rabinovich, S., & Wright, R. (2010). On the Multiplicity of Monetary Equilibia: Green-Zhou Meets Lagos-Wright.
Article AbstractGreen and Zhou relax the assumption, made in early search-based models of monetary exchange, of indivisible money. Their paper and various extensions make much technical progress, and derive some interesting substantive results. In particular, they show there is an indeterminacy of steady-state monetary equilibria. We reconsider this result in the framework of Lagos and Wright, which is more tractable. We show that a similar multiplicity arises, and is much easier to derive and understand. We also compare the results to those in related nonmonetary models, and discuss how they depend on details, including the number of agents and the timing.
Journal of Economic Theory (145), 392-401. doi: 10.1016/j.jet.2009.03.006.
Rocheteau, G., & Wright, R. (2009). Inflation and Welfare with Trading Frictions.
Article AbstractAll central banks manage the supply of money and credit in their countries, increasing and decreasing them as needed to provide what economies need to keep growing. The way central banks typically handle that job involves short-term interest rates. But when inflation is low, central banks can't use their usual methods to get money and credit into an economy that needs it. Several essays in this volume describe the work of economists who have investigated problems that central banks might have when inflation gets low. Other essays investigate related questions such as whether an economy suffers when it moves from high inflation to low inflation, what the costs of inflation are to economic welfare, and whether a little bit of inflation can actually be good for economic growth.
, 89-116.
Rogerson, R., Visschers, L., & Wright, R. (2009). Labor Market Fluctuations in the Small and in the Large.
Article AbstractShimer's calibrated version of the Mortensen–Pissarides model generates unemployment fluctuates much smaller than the data. Hagedorn and Manovskii present an alternative calibration that yields fluctuations consistent with the data, but this has been challenged by Costain and Reiter, who say it generates unrealistically big differences in unemployment from the differences in policy we see across countries. We argue this concern might be unwarranted, because one cannot assume that elasticities relevant for small changes work for large changes. Models with fixed factors in market or household production can generate large effects from small changes and reasonable effects from large changes. This is reminiscent of attempts to improve the labor market in the Kydland–Prescott model, especially ones incorporating household production, like Benhabib, Rogerson, and Wright.
International Journal of Economic Theory (5), 125-137. doi: 10.1111/j.1742-7363.2008.00097.x.
Rocheteau, G., Rupert, P., Shell, K., & Wright, R. (2008). General Equilibrium with Nonconvexities and Money. Journal of Economic Theory (142), 294-317. doi: http://dx.doi.org/10.1016/j.jet.2006.07.011.
Wright, R. (2008). Search and Matching Models of Monetary Exchange.
He, P., Huang, L., & Wright, R. (2008). Money, Banking and Monetary Policy.
Article AbstractAn important function of banks is to issue liabilities, like demand deposits, that are relatively safe and liquid. We introduce a risk of theft and a safe-keeping role for banks into modern monetary theory. This provides a general equilibrium framework for analyzing banking in historical and contemporary contexts. The model can generate the concurrent circulation of cash and bank liabilities as media of exchange, or inside and outside money. It also yields novel policy implications. For example, negative nominal interest rates are feasible, and for some parameters optimal; for other parameters, strictly positive nominal rates are optimal.
Journal of Monetary Economics (55), 1013-1024. doi: 10.1016/j.jmoneco.2008.06.004.
Telyukova, I., & Wright, R. (2008). A Model of Money and Credit, with Application to the Credit Card Debt Puzzle.
Article AbstractMany individuals simultaneously have significant credit card debt and money in the bank. The credit card debt puzzle is as follows: given high interest rates on credit cards and low rates on bank accounts, why not pay down debt? While some economists go to elaborate lengths to explain this, we argue it is a special case of the rate of return dominance puzzle from monetary economics. We extend standard monetary theory to incorporate consumer debt, which is interesting in its own right since developing models where money and credit coexist is a long-standing challenge. Our model is quite tractable—for example, it readily yields nice existence and characterization results—and helps put into context recent discussions of consumer debt.
Review of Economic Studies (75), 629-647. doi: 10.1111/j.1467-937X.2008.00487.x.
Rocheteau, G., Rupert, P., & Wright, R. (2007). Inflation and Unemployment in General Equilibrium.
Article AbstractWhen labor is indivisible, there exist efficient outcomes with some agents randomly unemployed, as in Rogerson (1988). We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets, as in Lagos and Wright (2005). This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show that the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips curve provides a long-run, exploitable, trade-off for monetary policy; it turns out, however, that the optimal policy is the Friedman rule.
Scandinavian Journal of Economics (109), 837–855. doi: 10.1111/j.1467-9442.2007.00511.x.
Moscarini, G., & Wright, R. (2007). Interview with Peter Diamond. Macroeconomic Dynamics (11), 543–565. doi: 10.1017/S1365100507060403.
Gamount, D., Schindler, M., & Wright, R. (2006). Equilibrium Wage Dispersion: An Example. The B.E. Journal of Macroeconomics (6), 1534-5998. doi: 10.2202/1534-5998.1462.
Gaumont, D., Schindler, M., & Wright, R. (2006). Alternative Theories of Wage Dispersion.
Article AbstractWe analyze labor market models where the law of one price fails—i.e., models with equilibrium wage dispersion. We begin considering ex ante heterogeneous workers, but highlight a problem with this approach: If search is costly the market shuts down. We then assume homogeneous workers but ex post heterogeneous matches. This model is robust to search costs, and delivers equilibrium wage dispersion. However, we prove that the law of two prices holds: Equilibrium implies at most two wages. We explore other models, including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion.
European Economic Review (50), 831-848, doi: 10.1016/j.euroecorev.2006.01.006.
Wright, R. (2005). Introduction to Models of Monetary Economies 2: The Next Generation. International Economic Review (46), 305–316. doi: 10.1111/j.1468-2354.2005.00319.x.
Rocheteau, G., & Wright, R. (2005). Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium.
Article AbstractWe compare three market structures for monetary economies: bargaining (search equilibrium); price taking (competitive equilibrium); and price posting (competitive search equilibrium). We also extend work on the microfoundations of money by allowing a general matching technology and entry. We study how equilibrium and the effects of policy depend on market structure. Under bargaining, trade and entry are both inefficient, and inflation implies first-order welfare losses. Under price taking, the Friedman rule solves the first inefficiency but not the second, and inflation may actually improve welfare. Under posting, the Friedman rule yields the first best, and inflation implies second-order welfare losses.
Econometrica (73), 175-202. doi: 10.1111/j.1468-0262.2005.00568.x.
Rogerson, R., Shimer, R., & Wright, R. (2005). Search-Theoretic Models of the Labor Market: a Survey.
Article AbstractWe survey the literature on search-theoretic models of the labor market. We show how this approach addresses many issues, including the following: Why do workers sometimes choose to remain unemployed? What determines the lengths of employment and unemployment spells? How can there simultaneously exist unemployed workers and unfilled vacancies? What determines aggregate unemployment and vacancies? How can homogeneous workers earn different wages? What are the tradeoffs firms face from different wages? How do wages and turnover interact? What determines efficient turnover? We discuss various modeling choices concerning wage determination and the meeting process, including recent models of directed search.
Journal of Economic Literature (43), 959–988. doi: 10.1257/002205105775362014.
Wright, R. (2005). Commentary (on Shimer's "The Cyclicality of Hires, Separations, and Job-to-Job Transitions"). (87), 509-512.
Lagos, R., & Wright, R. (2005). A Unified Framework for Monetary Theory and Policy Analysis.
Article AbstractSearch-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically need strong assumptions that make them ill-suited for studying monetary policy. We propose a framework based on explicit micro foundations within which macro policy can be analyzed. The model is both analytically tractable and amenable to quantitative analysis. We demonstrate this by using it to estimate the welfare cost of inflation. We find much higher costs than the previous literature: our model predicts that going from 10% to 0% inflation can be worth between 3% and 5% of consumption.
Journal of Political Economy (113), 463-484. doi: 10.1086/429804.
He, P., Huang, L., & Wright, R. (2005). Money and Banking in Search Equilibrium.
Article AbstractWe develop a new theory of money and banking based on the old story in which goldsmiths start accepting deposits for safe keeping, then their liabilities begin circulating as media of exchange, then they begin making loans. We first discuss the history. We then present a model where agents can open bank accounts and write checks. The equilibrium means of payment may be cash, checks, or both. Sometimes multiple equilibria exist. Introducing banks increases the set of parameters for which money is valued–thus, money and banking are complements. We also derive a microfounded version of the usual money multiplier.
International Economic Review (46), 637–670. doi: 10.1111/j.1468-2354.2005.00339.x.
Gomme, P., Rogerson, R., Rupert, P., & Wright, R. (2005). The Business Cycle and the Life Cycle. (19)
Burdett, K., Imai, R., & Wright, R. (2004). Unstable Relationships.
Article AbstractWe analyze models where agents search for partners to form relationships (employment, marriage, etc.), and may or may not continue searching for different partners while matched. Matched agents are less inclined to search if their match yields more utility, and also if it is more stable. If one partner searches the relationship is less stable, so the other is more inclined to search, potentially making instability a self-fulfilling prophecy. We show this can generate multiple -- indeed, a continuum of -- equilibria. We investigate efficiency and show that in any equilibrium there tends to be too much turnover, unemployment, and inequality. We calibrate an example to see how well the model can account for job-to-job transitions, and to see how much endogenous instability matters.
Frontiers of Macroeconomics (1), 1534-6021. doi: 10.2202/1534-6021.1102.
Curtis, E., & Wright, R. (2004). Price Setting, Price Dispersion, and the Value of Money: or, The Law of Two Prices. Journal of Monetary Economics (51), 1599-1621. doi: 10.1016/j.jmoneco.2004.04.010.
Schevchenko, A., & Wright, R. (2004). A Simple Model of Money with Heterogeneous Agents and Partial Acceptibility.
Article AbstractSimple search models have equilibria where some agents accept money and others do not. We argue such equilibria should not be taken seriously - which is unfortunate if one wants a model with partial acceptability. We introduce heterogeneous agents and show partial acceptability arises naturally. There can be multiple equilibria with different degrees of acceptability. Given the type of heterogeneity we allow, the model is still simple: equilibria reduce to fixed points in [0,1]. We show that with other forms of heterogeneity, equilibria are generally fixed points in set space, and there exists no method to reduce this to a problem in R1.
Economic Theory (24), 877-885. doi: 10.1007/s00199-002-0334-3.
Burdett, K., Lagos, R., & Wright, R. (2004). An On-the-Job Search Model of Crime, Inequality, and Unemployment.
Article AbstractWe extend simple search models of crime, unemployment, and inequality to incorporate on-the-job search. This is valuable because, although simple models are useful, on-the-job search models are more interesting theoretically and more relevant empirically. We characterize the wage distribution, unemployment rate, and crime rate theoretically, and use quantitative methods to illustrate key results. For example, we find that increasing the unemployment insurance replacement rate from 53 to 65 percent increases unemployment and crime rates from 10 and 2.7 percent to 14 and 5.2 percent. We show multiple equilibria arise for some fairly reasonable parameters; in one case, unemployment can be 6 or 23 percent, and crime 0 or 10 percent, depending on the equilibrium.
International Economic Review (45), 681-706. doi: 10.1111/j.0020-6598.2004.00283.x.
Lagos, R., & Wright, R. (2003). Dynamics, Cycles and Sunspot Equilibria in "Genuinely Dynamic, Fundamentally Disaggregative" Models of Money.
Article AbstractThis paper pursues a line of Cass and Shell, who advocate monetary models that are "genuinely dynamic and fundamentally disaggregative" and that incorporate "diversity among households and variety among commodities." Recent search-theoretic models fit this description. The authors show that, like overlapping generations models, search models generate interesting dynamic equilibria, including cycles, chaos, and sunspot equilibria. This helps explain how alternative models are related and lends support to the notion that endogenous dynamics and uncertainty matter, perhaps especially in monetary economies. Th authors also suggest that such equilibria in search models may be more empirically relevant than in some other models.
Journal of Economic Theory (109), 156-171. doi: 10.1016/S0022-0531(03)00021-8.
Burdett, K., Lagos, R., & Wright, R. (2003). Crime, Inequality, and Unemployment. American Economic Review (93), 1764-1777. doi: 10.1257/000282803322655536.
Aruoba, S., & Wright, R. (2003). Search, Money and Capital: A Neoclassical Dichotomy. Journal of Money, Credit, and Banking (35), 1086-1106.
Corbae, D., Temzilides, T., & Wright, R. (2003). Directed Matching and Monetary Exchange.
Article AbstractWe develop a model of monetary exchange where, as in the random matching literature, agents trade bilaterally and not through centralized markets. Rather than assuming they match exogenously and at random, however, we determine who meets whom as part of the equilibrium. We show how to formalize this process of directed matching in dynamic models with double coincidence problems, and present several examples and applications that illustrate how the approach can be used in monetary theory. Some of our results are similar to those in the random matching literature; others differ significantly.
Econometrica (71), 731-756. doi: 10.1111/1468-0262.00424.
Berentsen, A., Molico, M., & Wright, R. (2002). Indivisibilities, Lotteries, and Monetary Exchange. Journal of Economic Theory (107), 70-94. doi: 10.1006/jeth.2000.2689.
Mortensen, D., & Wright, R. (2002). Competitive Pricing and Efficiency in Search Equilibrium.
Article AbstractWe consolidate and generalize some results on price determination and efficiency in search equilibrium. Extending models by Rubinstein and Wolinsky and by Gale, heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition. When the discount rate r and search costs converge to 0, we show that prices in all exchanges are the same and equal the competitive, market clearing, price. Given positive search costs, efficiency obtains iff bargaining satisfies Hosios' condition and r=0. When prices are set by third-party market makers, however, we show that search equilibrium is necessarily efficient.
International Economic Review (43), 1-20. doi: 10.1111/1468-2354.t01-1-00001.
Corbae, D., Temzilides, T., & Wright, R. (2002). Matching and Money. (92), 67-71.
Rupert, P., Schindler, M., & Wright, R. (2001). Generalized Search-Theoretic Models of Monetary Exchange.
Article AbstractThis paper extends the literature on search-theoretic models of money in several ways. It provides results for general bargaining parameters, whereas previous papers consider only special cases. It also presents one version of the model in which agents holding money cannot produce and another in which they can. The former has been used in essentially all the previous literature, although the latter seems more natural for some purposes and avoids several undesirable implications. Since very little is known about this version, the authors analyze it in detail.
Journal of Monetary Economics (48), 605-622. doi: 10.1016/S0304-3932(01)00088-5.
Burdett, K., Shi, S., & Wright, R. (2001). Pricing and Matching with Frictions.
Article AbstractSuppose that n buyers each want one unit and m sellers each have one or more units of a good. Sellers post prices, and then buyers choose sellers. In symmetric equilibrium, similar sellers all post one price, and buyers randomize. Hence, more or fewer buyers may arrive than a seller can accommodate. We call this frictions. We solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow. The matching function displays decreasing returns but converges to constant returns. We argue that the standard matching function in the literature is misspecified and discuss implications for the Beveridge curve.
Journal of Political Economy (109), 1060-1085. doi: 10.1086/322835.
Burdett, K., Trejos, A., & Wright, R. (2001). Cigarette Money.
Article AbstractWe study how commodities emerge as money, the way cigarettes did in POW camps. We characterize how specialization, trading frictions, intrinsic properties of goods, and the amount of fiat money determine whether a commodity serves as money and its value. In some equilibria, the exchange value of commodity money is pinned down by its consumption value; in others, it is not. The value of fiat money may or may not be pinned down by commodity money. In some equilibria, the total (fiat plus commodity) money supply is independent of the fiat money supply. We also discuss implications for Gresham's law.
Journal of Economic Theory (99), 117-142. doi: 10.1006/jeth.2000.2731.
Wright, R., & Trejos, A. (2001). International Currency.
Article AbstractWe develop a two-country, two-currency, search-theoretic model of monetary exchange, extending previous such models by endogenizing prices using bargaining theory. We analyze features of the environment that make it more likely that a given money circulates internationally. We show the value of a given currency rises if it circulates abroad, and falls if foreign money circulates locally. Also, we show that international monies have more value at home than abroad. These results help to explain the otherwise anomalous observation that the US dollar is an outlier in the empirical relationship between income and PPP deflators.
Advances in Macroeconomics (1), 1534-6013. doi: 10.2202/1534-6013.1020.
Spear, S., & Wright, R. (2001). Interview with Karl Shell. Macroeconomic Dynamics (5), 701-741. doi: 10.1017/S1365100501031030.
Parente, S., Rogerson, R., & Wright, R. (2000). Homework in Development Economics: Household Production and the Wealth of Nations.
Article AbstractWe introduce home production into the neoclassical growth model and examine its consequences for development economics. In particular, we study the extent to which one can account for international income differences with differences in policies that distort capital accumulation. In models with home production, such policies not only reduce capital accumulation but also change the mix of market and nonmarket activity. Hence these models can generate larger differences in output than standard models for a given policy differential. We also show how the welfare implications change when we incorporate home production.
Journal of Political Economy (108), 680-687. doi: 10.1086/316102.
Rogerson, R., Rupert, P., & Wright, R. (2000). Homework in Labor Economics: Household Production and Intertemporal Substitution.
Article AbstractWe argue that estimates of intertemporal substitution elasticities obtained from standard life cycle models are subject to a downward bias because they neglect changes in work done at home over the life cycle. We extend the standard life cycle model to include home production and estimate it using data from three time use surveys. We find that the downward bias is large.
Journal of Monetary Economics (46), 557-79. doi: 10.1016/S0304-3932(00)00038-6.
Wright, R. (2000). Estimating the Intertemporal Elasticity of Substitution in a Model with Household Production: Implications for Macroeconomics,.
Article AbstractPanel Data and Structural Labour Market Models" is the latest volume in a series of four, reporting on the original work of an international group of scholars with research interests in the performance of the labour markets that condition the dynamic labour market experiences of individual workers. The book contains papers focusing on theoretical and empirical modelling of the labour market covering both wage equilibrium models and models for labour market transition. Contributions range from the theoretical or econometric through empirical structural methods and exploratory data analysis based on employer and employee level data. Academic libraries, labour economists, labour and industrial relations research institutes and statistical agencies will find this a particularly useful piece of work.
(243), 171-195.
Rupert, P., Schindler, M., Shevchenko, A., & Wright, R. (2000). The Search-Theoretic Approach to Monetary Economics: A Primer.
Article AbstractThe authors present simple versions of the models used in the search-theoretic approach to monetary economics. They discuss results on the existence of monetary equilibria, the potential for multiple equilibria, and welfare. They consider models where prices are fixed as well as models where prices are determined endogenously by bilateral bargaining. After discussing the frictions necessary to construct a model with an essential role for money, they conclude the paper by reviewing many extensions and applications in the related literature.
Wright, R. (1999). Introduction to the Special Issue on Search, Matching & Related Topics. International Economic Review (40), 803–808. doi: 10.1111/1468-2354.00041.
Velde, F., Weber, W., & Wright, R. (1999). A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle.
Article AbstractWe develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham's Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. Following a debasement, the quantity of reminting depends on the incentives offered by the sovereign. Equilibria exist with positive seigniorage and a mixture of old and new coins in circulation.
Review of Economic Dynamics (2), 291-323. doi: 10.1006/redy.1998.0037.
Wright, R. (1999). A Note on Asymmetric and Mixed Strategy Equilibria in the Search-Theoretic Model of Fiat Money.
Article AbstractThe simple search-theoretic model of fiat money has three symmetric Nash equilibria: all agents accept money with probability 1; all agents accept money with probability 0; and all agents accept money with probability y in (0,1). Here I construct an asymmetric pure strategy equilibrium, payoff-equivalent to the symmetric mixed strategy equilibrium, where a fraction N in (0,1) of agents always accept money and 1-N never accept money. Counter to what has been conjectured previously, I find N > y. I also introduce evolutionary dynamics, and show that the economy converges to monetary exchange if the initial proportion of agents accepting money exceeds N.
Economic Theory (14), 463-471. doi: 10.1007/s001990050304.
Wright, R. (1999). Comment on ""Inside and Outside Money as Alternative Media of Exchange" by Cavalcanti & Wallace. Journal of Money, Credit, and Banking (31), 461-468.
Coles, M., & Wright, R. (1998). A Dynamic Equilibrium Model of Search, Bargaining, and Money.
Article AbstractThis paper considers dynamic equilibria in a model with random matching, strategic bargaining, and money. Equilibrium in the bargaining game is characterized in terms of a simple differential equation. When we embed this characterization into the monetary economy, the model can generate outcomes such as limit cycles that never arise if one imposes a myopic Nash bargaining solution, as has been done in the past.
Journal of Economic Theory (78), 32-54. doi: 10.1006/jeth.1997.2353.
Burdett, K., & Wright, R. (1998). Two-Sided Search with Nontransferable Utility.
Article AbstractWe analyze a two-sided search model in which we assume utility is not perfectly transferable. Except for this assumption the model is standard, yet it generates results that are quite different from those obtained in models with transferable utility. In particular, the model has multiple equilibria, even with constant returns to scale in the meeting technology. We also provide conditions to guarantee uniqueness in equilibrium search models with or without transferable utility. These conditions apply even with increasing returns in the meeting technology. Examples and applications are discussed. (Copyright: Elsevier)
Review of Economic Dynamics (1), 220-245. doi: 10.1006/redy.1997.0004.
Spear, S., & Wright, R. (1998). Interview with David Cass. Macroeconomic Dynamics (2), 533-558.
Li, Y., & Wright, R. (1998). Government Transaction Policy, Media of Exchange, and Prices.
Article AbstractWe study government transaction policies in search-theoretic models of money. We model government as a subset of agents, who are subject to the same random matching technology and other constraints as private agents, but who behave in an exogenous way regarding which objects they accept in trade and at what price. The objective is to see how these policies affect private agents' strategies, and hence the set of equilibria. We analyze how the effects depend on factors like the size of government, the intrinsic properties of money, and the availability and efficacy of substitutes like barter or foreign currency.
Journal of Economic Theory (81), 290-313. doi: 10.1006/jeth.1997.2363.
McGrattan, E., Rogerson, R., & Wright, R. (1997). An Equilibrium Model of the Business Cycle.
Article AbstractWe estimate a dynamic general equilibrium model of the U.S. economy that includes an explicit household production sector and stochastic fiscal variables. We use our estimates to investigate two issues. First, we analyze how well the model accounts for aggregate fluctuations. We find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables. Second, we study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production.
International Economic Review (38), 267-290.
Cuadras-Morato, X., & Wright, R. (1997). On Money as a Medium of Exchange When Goods Vary by Supply and Demand.
Article AbstractModels of the exchange process based on search theory can be used to analyze the features of objects that make them more or less likely to emerge as money in equilibrium. These models illustrate the trade-off between endogenous acceptability (an equilibrium property) and intrinsic characteristics of goods, such as storability or recognizability. We look at how the relative supply and demand for various goods affect their likelihood of becoming money. Intuitively, goods in high demand and/or low supply are more likely to appear as commodity money, subject to the qualification that which object ends up circulating as a medium of exchange depends at least partly on convention. Welfare properties and fiat money are discussed.
Macroeconomic Dynamics (1), 680-700. doi: 10.1017/S1365100597005026.
Wright, R. (1996). Taxes, Redistribution, and Growth. Journal of Public Economics (62), 327-338. doi: 10.1016/0047-2727(95)01570-1.
Aiyagari, S., Wallace, N., & Wright, R. (1996). Coexistence of Money and Interest Bearing Securities.
Article AbstractA random matching model with money is used to study the nominal yield on small denomination, bearer, safe, discount securities issued by the government. There is always one steady state with matured securities circulating at par and, for some parameters, another with them circulating at a discount. In the former, a necessary and sufficient condition for a positive nominal yield on not-yet-matured securities is exogenous discriminatory treatment of them by the government. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even without such discriminatory treatment.
Journal of Monetary Economics (37), 397-419. doi: 10.1016/0304-3932(96)01260-3.
Trejos, A., & Wright, R. (1996). Search-Theoretic Models of International Currency.
Article AbstractStudies various developments related to international monetary issues. Background on the study; Features of model presented; Model with indivisible output; Regime with no international money; Model with divisible output.
(78), 117-132.
Trejos, A., & Wright, R. (1995). Search, Bargaining, Money, and Prices.
Article AbstractThis goal of this paper is to extend existing search-theoretic models of fiat money, which until now have assumed that the price level is exogenous, by explicitly incorporating bilateral bargaining. This allows the determination of the price level endogenously and leads to additional insights concerning the role of money. For example, the authors find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner's problem, although the difference can become small as the discount rate or search friction vanishes. The authors also find that there exist nonstationary inflationary equilibria.
Journal of Political Economy (103), 118-141.
Wright, R. (1995). Search, Evolution, and Money.
Article AbstractThis paper describes a search-theoretic model that can be used to determine which objects serve as media of exchange, or money. Existing versions of the model are generalized to allow arbitrary distributions of agents who specialize in different consumption-production activities. I characterize the way the numbers of consumers and producers of the various goods help determine which goods serve as money. The distribution is then endogenized, so that agents can choose their type. This generates a unique equilibrium outcome. Ideas from evolutionary dynamics are employed as a way to interpret the model, and to compute equilibria.
Journal of Economic Dynamics and Control (19), 181-206. doi: 10.1016/0165-1889(93)00770-5.
Greenwood, J., Rogerson, R., & Wright, R. (1995). Household Production in Real Business Cycle Theory. , 157-174.
Rogerson, R., Rupert, P., & Wright, R. (1995). Estimating Substitution Elasticities in Household Production Models.
Article AbstractDynamic general equilibrium models that include explicit household production sectors provide a useful framework within which to analyze a variety of macroeconomic issues. However, some implications of these models depend critically on parameters, including the elasticity of substitution between market and home consumption goods, about which there is little information in the literature. Using the PSID, we estimate these parameters for single males, single females, and married couples. At least for single females and married couples, the results indicate a high enough substitution elasticity that including home production will make a significant difference in applied general equilibrium theory.
Economic Theory (6), 179-19. doi: 10.1007/BF01213946.
Wright, R. (1995). Commentary (on Meltzer's "Information, Sticky Prices and Macroeconomic Foundations"). (77), 119-24.
Burdett, K., Coles, M., Kiyotaki, N., & Wright, R. (1995). Buyers and Sellers: Should I Stay or Should I Go?. Papers and Proceedings of the Hundredth and Seventh Annual Meeting of the American Economic Association Washington, DC (85), 281-286.
Williamson, S., & Wright, R. (1994). Barter and Monetary Exchange under Private Information.
Article AbstractWe analyze economies with private information concerning the quality of commodities. Without private information there is a nonmonetary equilibrium with only high quality commodities produced, and money cannot improve welfare. With private information there can be equilibria with bad quality commodities produced, and sometimes only nonmonetary equilibrium is degenerate. The use of money can lead to active (i.e., nondegenerate) equilibria when no active nonmonetary equilibrium exists. Even when active nonmonetary equilibria exist, with private information money can increase welfare via its incentive effects: in monetary equilibrium, agents may adopt trading strategies that discourage production of low quality output.
American Economic Review (84), 104-123.
Wright, R. (1994). A Note on Sunspot Equilibria in Search Models of Fiat Money.
Article AbstractSearch models can generate an endogenous role for fiat money, in the sense that there exist equilibria where intrinsically useless, unbacked, paper currency is valued due to its function as a medium of exchange. In this note, I ask if there exist sunspot equilibria in these models, where the value or acceptability of money fluctuates along with extrinsic random events even though the fundamentals of the economy are deterministic and time invariant. The answer is yes.
Journal of Economic Theory (64), 234-241. doi: 10.1006/jeth.1994.1064.
Trejos, A., & Wright, R. (1993). Search, Bargaining, Money and Prices: Recent Results and Policy Implications.
Article AbstractRecently, the search-theoretic approach to monetary economics has been generalized to incorporate bilateral bargaining theory in order to determine the purchasing power of money endogenously (the first-generation of models in this literature essentially assume that prices are fixed exogenously). The authors review these results. They then use the model to address a variety of issues in monetary economics. The authors analyze the relationships between monetary and real variables, including velocity, output, and welfare. They also discuss several aspects of monetary policy, including the effects of randomness in the money supply process.
Journal of Money, Credit and Banking (25), 558-576.
Boldrin, M., Kiyotaki, N., & Wright, R. (1993). A Dynamic Equilibrium Model of Search, Production, and Exchange.
Article AbstractWe study a general equilibrium model where agents search for production and trading opportunities, that generalizes the existing literature by considering a large number of differentiated commodities and agents with idiosyncratic tastes. Thus, agents must choose nontrivial exchange as well as production strategies. We consider decreasing, constant, and increasing returns to scale in the matching technology, and characterize the circumstances under which there exist multiple steady state equilibria, or multiple dynamic equilibria for given initial conditions. We also characterize theexistence of dynamic equilibria that are limit cycles. Equilibria are not generally optimal, and when multiple equilibria coexist they may be ranked. We analyze comparative statics and find that certain certain intuitive results do not necessarily hold without restrictions on the stochastic structure.
Journal of Economic Dynamics and Control (17), 723-758. doi: 10.1016/0165-1889(93)90012-H.
Shell, K., & Wright, R. (1993). Indivisibilities, Lotteries, and Sunspot Equilibria.
Article AbstractWe analyze economies with indivisible commodities. There are two reasons for doing so. First, we extend and provide new insights into sunspot equilibrium theory. Finite competitive economies with perfect markets and convex consumption sets do not allow sunspot equilibria; these same economies with nonconvex consumption sets do, and they have several properties that can never arise in convex environments. Second, we provide a reinterpretation of the employment lotteries used in contract theory and in macroeconomic models with indivisible labor. We show how socially optimal employment lotteries can be decentralized as competitive equilibria once sunspots are introduced.
Economic Theory (3), 1-17. doi: 10.1007/BF01213688.
Kehoe, T., Kiyotaki, N., & Wright, R. (1993). More on Money as a Medium of Exchange.
Article AbstractWe extend the analysis of Kiyotaki and Wright, who study an economy in which the different commodities that serve as media of exchange are determined endogenously. Kiyotaki and Wright consider only symmetric, steady-state, pure-strategy equilibria, and find that for some parameter values no such equilibria exist. We consider mixed-strategy equilibria and dynamic equilibria. We prove that a steady-state equilibrium exists for all parameter values and that the number of steady-state equilibria is generically finite. We also show, however, that there may be a continuum of dynamic equilibria. Further, some dynamic equilibria display cycles.
Economic Theory (3), 297-314. doi: 10.1007/BF01212919.
Kiyotaki, N., & Wright, R. (1993). A Search-Theoretic Approach to Monetary Economics.
Article AbstractThe essential function of money is its role as a medium of exchange. We formalize this idea using a search-theoretic equilibrium model of the exchange process that captures the "double coincidence of wants problem" with pure barter. One advantage of the framework described here is that it is very tractable. We also show that the model can be used to address some substantive issues in monetary economics, including the potential welfare-enhancing role of money, the interaction between specialization and monetary exchange, and the possibility of equilibria with multiple fiat currencies.
American Economic Review (83), 63-77.
Wright, R. (1993). Search, Matching and Unions.
Article AbstractThe contributions in this volume, by leading economists from major universities in Europe and USA, cover research at the front line of econometric analysis and labour market applications. The volume includes several papers on equilibrium search models (a relatively new field), and job matching, both seen from a theoretical and from an applied point of view. Methods on and empirical analyses of unemployment durations are also discussed. Finally, a large group of papers examine the structure and the dynamics of the labour market in a number of countries using panel data. This group includes papers on data quality and policy evaluation. The high unemployment in most countries makes it necessary to come up with studies and methods for analysing the impact of different elements of economic policies. This volume is intended to contribute to further development in the use of panel data in economic analyses.
Nosal, E., Rogerson, R., & Wright, R. (1992). The Role of Household Production in Models of Involuntary Unemployment and Underemployment.
Article AbstractA classic result in the theory of labour contracts with asymmetric information is that underemployment results if and only if leisure is an inferior good. A classic result in models where unemployment occurs because of indivisibilities, including implicit contract models and some equilibrium macroeconomic models, is that unemployment is involuntary if and only if leisure is an inferior good. We introduce household production into otherwise standard versions of these models and show that this implies we can have underemployment in asymmetric-information models or involuntary unemployment in indivisible-labour models without assuming that leisure is inferior.
Canadian Journal of Economics (25), 507-520.
Smith, E., & Wright, R. (1992). Why is Automobile in Philadelphia Insurance so Damn Expensive?.
Article AbstractThe authors document and attempt to explain the observation that automobile insurance premiums vary dramatically across cities. The authors argue that high premiums can be attributed, at least in part, to large numbers of uninsured motorists in some markets, while uninsured motorists can be attributed to high premiums. The authors construct a simple noncooperative equilibrium model that can generate inefficient equilibria with uninsured drivers and high, yet actuarially fair, premiums. For certain parameterizations, an efficient full-insurance equilibrium and inefficient high-price equilibria with uninsured drivers exist simultaneously, helping to explain price variability across otherwise similar cities. Policy implications are discussed.
American Economic Review (82), 756-772.
Kiyotaki, N., & Wright, R. (1992). Acceptability, Means of Payment, and Media of Exchange.
Hansen, G., & Wright, R. (1992). The Labor Market in Real Business Cycle Theory. , 2-12.
Gaston, N., & Wright, R. (1991). The Effects of Risk on Efficient Labor Contracts.
Article AbstractWe analyze the effects of productivity risk on the expected utility of workers under efficient labor contracts. With multiplicative uncertainty in productivity, an increase in risk increases workers' expected utility, holding expected profit constant, as has been shown by Rosen. With a technology that is concave in both labor and the productivity shock, however, the opposite is true. We also study the effects of risk on wages, employment and hours, and characterize the dependence of these effects on the curvature of the marginai productivity schedule.
Finnish Economic Papers (4), 2-9.
Puhakka, M., & Wright, R. (1991). Subsidization and Stabilization: Optimal Employment Policy under Aggregate Uncertainty.
Article AbstractWe study an economy where externalities provide an explicit role for intervention and technology shocks generate aggregate uncertainty. In laissez-faire there is too much unemployment. However, we show how to support the optimal allocation as a decentralized equilibrium using a self-financing linear employment subsidy. Generally, this subsidy is a function of economic conditions, and we characterize the way in which it varies with the shock. A special case of our results indicates that a simple restriction on technology, homotheticity, implies the optimal subsidy is constant, or independent of unemployment.
International Economic Review (32), 513-528.
Kiyotaki, N., & Wright, R. (1991). A Contribution to the Pure Theory of Money.
Article AbstractWe analyze a general equilibrium model with search frictions and differentiated commodities. Because of the many differentiated commodities, barter is difficult because it requires a double coincidence of wants, and this provides a medium of exchange role for fiat money. We prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment, including imposing transactions costs, storage costs, and taxes on the use of money. Rate of return dominance, liquidity, and the potential welfare improving role of fiat money are discussed.
Journal of Economic Theory (53), 215-235. doi: 10.1016/0022-0531(91)90154-V.
Benhabib, J., Rogerson, R., & Wright, R. (1991). Homework in Macroeconomics: Household Production and Aggregate Fluctuations.
Article AbstractThis paper explores some macroeconomic implications of including household production in an otherwise standard real business cycle model. We calibrate the model based on microeconomic evidence and long run considerations, simulate it, and examine its statistical properties Our finding is that introducing home production significantly improves the quantitative performance of the standard model along several dimensions. It also implies a very different interpretation of the nature of aggregate fluctuations.
Journal of Political Economy (99), 1166-1187.
Wright, R. (1991). Comment on "The Welfare Costs of Moderate Inflations" by Cooley & Hansen. Journal of Money, Credit, and Banking (23), 513-518.
Wachter, M., & Wright, R. (1990). The Economics of Internal Labor Markets.
Article AbstractOur essay focuses on the economics of long-term contractual relationships between a firm and its employees, referred to as the internal labor market. We review the economics literature on match-specific investments, risk aversion, asymmetric information, and transaction costs. We argue that an integrated treatment of all four factors is needed in order to apply implicit contract theory to internal labor markets. Integrating the topics also highlights the tradeoffs created among these factors. Our discussion stresses contract enforcement mechanisms, including self-enforcing contracts and third-party enforcement.
Industrial Relations (29), 240-262. doi: 10.1111/j.1468-232X.1990.tb00753.x.
Burdett, K., & Wright, R. (1989). Optimal Firm Size, Taxes and Unemployment.
Article AbstractWe analyze a model similar to the standard implicit contracting framework, but assume that the size of the firm (the number of workers under contract) is endogenous. Some well-known predictions from contract theory with firm size fixed exogenously are reversed. In particular, a result obtained by Feldstein concerning unemployment insurance does not hold when firm size is chosen optimally: he concludes an increase in experience rating (the extent to which firms pay for unemployment benefits through their taxes) reduces unemployment, while we show that it increases unemployment under reasonable conditions.
Journal of Public Economics (39), 275-287. doi: 10.1016/0047-2727(89)90030-3.
Kiyotaki, N., & Wright, R. (1989). On Money as a Medium of Exchange.
Article AbstractThe authors analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo. Nash equilibria in trading strategies are characterized. Certain goods emerge endogenously as media of exchange, or commodity money, depending both on their intrinsic properties and on extrinsic beliefs. There are also equilibria with genuine fiat currency circulating as the general medium of exchange. The authors find that equilibria are not generally Pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare. Velocity, acceptability, and liquidity are discussed.
Journal of Political Economy (97), 927-954.
Burdett, K., & Wright, R. (1989). Unemployment Insurance and Short-Time Compensation.
Article AbstractWe analyze two unemployment insurance systems. In one, unemployed workers receive benefits while those on reduced hours do not, as in North America (at least until recently). In the other, short-time compensation is paid to workers on reduced hours, as in Europe. The first system causes inefficient temporary layoffs for some parameters; the latter does not, but implies inefficient hours per worker. Some evidence is presented regarding these effects. Despite policymakers' recent enthusiasm for short-time compensation, the clear implication of this project is that changes should come on the tax, not benefit, side of the system.
Journal of Political Economy (97), 1479-1496.
Rogerson, R., & Wright, R. (1988). Involuntary Unemployment in Economies with Efficient Risk Sharing. Journal of Monetary Economics (22), 501-515. doi: 10.1016/0304-3932(88)90011-6.
Wright, R. (1988). The Observational Implications of Labor Contracts in a Dynamic General Equilibrium Model.
Article AbstractEconomies are studied where labor contracts, even without changing real allocations, can make equilibria appear different. One basic example is that wage observations generated by long-term employment contracts are biased measures of theoretical market wages. This idea is analyzed in a dynamic, stochastic, economic model, including both overlapping generations of finite-lived workers and infinite-horizon employers, so that the implications for business cycle, life cycle, and cross-sectional phenomena can be explicitly addressed. Understanding contracts in thi s way potentially allows one to reconcile several ostensibly anomalous aspects of the data with equilibrium theory.
Journal of Labor Economics (6), 530-551.
Hotchkiss, J., & Wright, R. (1988). A General Model of Unemployment Insurance With and Without Short-Time Compensation. (9), 91–131.
Wright, R. (1987). Expectation Dependence of Random Variables, with an Application in Portfolio Theory. Theory and Decision (22), 111-124. doi: 10.1007/BF00126386.
Wright, R. (1987). Market Structure and Competitive Equilibrium in Dynamic Economic Models.
Article AbstractRecently theorists have analyzed economies which potentially contain both finite and infinite horizon overlapping generations, using “Arrow-Debreu” (complete) markets. Typically, applied models assume recursive spot and contingent securities markets, implying a different equilibrium concept. Indeed, if infinite horizon agents are present recursive equilibria cannot exist without some side conditions on debt. With the right side conditions, we show that every recursive market equilibrium allocation is a complete market equilibrium allocation and vice versa. This bridges a gap between theory and applications, and extends existing equivalence results on market structure.
Journal of Economic Theory (41), 189-201. doi: 10.1016/0022-0531(87)90013-5.
Wright, R., & Loberg, J. (1987). Unemployment Insurance, Taxes and Unemployment.
Article AbstractUnemployment insurance is financed by a tax on wages below a given ceiling. Hamermesh advocates raising this ceiling on distributional grounds. In a job search model this does decrease unemployment among low-wage workers but also increases unemployment among high-wage workers and lowers everyone's expected after-tax wage. An increase in the ceiling combined with a proportionate reduction in the tax rate decreases unemployment for low-wage workers while increasing their after-tax wage, without affecting high-wage workers at all. When unemployment benefits and wages are taxed at one rate, employment and wages are independent of that rate.
Canadian Journal of Economics (20), 36-54.
Wright, R. (1987). Search, Layoffs and Reservation Wages.
Article AbstractThe author analyzes job-search models with random layoffs in which employment opportunities are characterized by a wage and some measure of risk. Intuition suggests that a worker ought to demand a higher wage if he is to accept a job with a higher layoff rate, but this is not true in several models analyzed in the literature. The author demonstrates that assumptions about what happens immediately after a layoff and after a quit are critical in determining the relation between reservation wages and risk. Making these assumptions explicit clarifies the reasons why different models imply quite different predictions.
Journal of Labor Economics (5), 354-365.
Wright, R. (1986). Job Search and Cyclical Unemployment.
Article AbstractA model economy is described that integrates job search and signal extraction analysis. Equilibrium differs from search models without signal extraction in that, even with a fixed real sector, unemployment fluctuates stochastically. It differs from standard signal extraction models because search introduces persistence. In fact, unemployment follows a second-order difference equation with coefficient that are functions of current and lagged values of the stochastic shocks. Thus the model has the potential to mimic actual business cycle data despite the fact that the underlying shocks are independently and identically distributed. Policy implications are discussed.
Journal of Political Economy (94), 38-55.
Wright, R. (1986). The Redistributive Roles of Unemployment Insurance and the Dynamics of Voting. Journal of Public Economics (31), 377-399. doi: 10.1016/0047-2727(86)90066-6.

Submitted Working Papers

Wright, R., & Venkateswaran. (2012). A New Monetarist Model of Financial and Macro-economic Activity.
He, Wright, R., & Yu. (2011). Housing and Liquidity.
Wright, R., & Trejos. (2011). Money and Finance: An Integrated Approach.
Chiu, J., Meh, C., & Wright, R. (2011). Innovation and Growth with Financial, and Other, Frictions.
Article AbstractThe generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions. Productivity increases with knowledge, which advances via innovation, and with the exchange of ideas from those who generate them to those best able to implement them (technology transfer). But frictions in this market, including search, bargaining, and commitment problems, impede exchange and thus slow growth. We characterize optimal policies to subsidize research and trade in ideas, given both knowledge and search externalities. We discuss the roles of liquidity and financial institutions, and show two ways in which intermediation can enhance efficiency and innovation. First, intermediation allows us to finance more transactions with fewer assets. Second, it ameliorates certain bargaining problems, by allowing entrepreneurs to undo otherwise sunk investments in liquidity. We also discuss some evidence, suggesting that technology transfer is a significant source of innovation and showing how it is affected by credit considerations.
Wong, Y., & Wright, R. (2011). Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes.
Article AbstractWe study bilateral exchange, both direct trade and indirect trade that happens through chains of intermediaries or middlemen. We develop a model of this activity and present applications. This illustrates how, and how many, intermediaries get involved, and how the terms of trade are determined. We show how bargaining with one intermediary depends on upcoming negotiations with downstream intermediaries, leading to holdup problems. We discuss the roles of buyers and sellers in bilateral exchanges, and how to interpret prices. We develop a particular bargaining solution and relate it to other solutions. In addition to contrasting our framework with other models of middlemen, we discuss the connection to different branches of search theory. We also illustrate how bubbles can emerge in intermediation.
Gu, C., & Wright, R. (2010). Endogenous Credit Cycles.
Article AbstractWe study models of credit with limited commitment, which implies endogenous borrowing constraints. We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics. There are also stochastic (sunspot) equilibria, in which credit conditions change randomly over time, even though fundamentals are deterministic and stationary. We show this can occur when the terms of trade are determined by Walrasian pricing or by Nash bargaining. The results illustrate how it is possible to generate equilibria with credit cycles (crunches, freezes, crises) in theory, and as recently observed in actual economies.
Mattesini, & Wright, R. Friedman Meets Andolfatto.
Wright, R., Nosal, & Wong. A Generalized Model of Middlemen.
Wright, R., Choi, & Nakajima. Asset Pricing in Competitive Search Equilibrium.
Choi, & Wright, R. Retail Markets in Neoclassical Theory.
Mattesini, & Wright, R. Contracts and Liquidity.
Wright, R. Liquidity: A New Monetarist Approach.
Silviera, Wong, & Wright, R. The Venture Capital Cycle: A Model of Search and Bargaining.
Burdett, Dong, Sun, & Wright, R. Markets, Marriage and Money: A Coasian Theory of Household Formation.
Wright, R., Gu, & Mattesini. Money and Credit Redux.
Wright, R. Competitive Search: A Survey.
Wright, R., & Wong. Venture Capital: A Three-Sided Search-and-Bargaining Model.


HULM Conference ( 2013 ) Keynote Speaker

Missouri Economics Assoc ( 2013 ) Plenary Speaker

European Search & Matching ( 2012 ) Plenary Speaker

The Marshall Lecture ( 2011 ) Really, Really Rational Inattention; Or, How I Learned to Stop Worrying and Love Sticky Prices

The Toulouse Lectures ( 2011 ) The Eighth Toulouse Lectures in Economics: "Liquidity"

Midwest Macro ( 2010 ) Plenary Speaker

Undergraduate Courses

Contemporary Topics
Course DescriptionA course for the exploration of subject areas possibly to be introduced into the business curriculum.
(FIN 365 Section 2), Fall 2009.

Contemporary Topics
Course DescriptionA course for the exploration of subject areas possibly to be introduced into the business curriculum.
(FIN 365 Section 3), Fall 2010.

Graduate Courses

Topics Seminar-Finance PhD
Course DescriptionSpecial topics of current or emerging interest in financial economics.
(FIN 972 Section 1), Fall 2009.

Topics Seminar-Finance PhD
Course DescriptionSpecial topics of current or emerging interest in financial economics.
(FIN 972 Section 1), Fall 2010.

Combined Undergraduate & Graduate Courses

Contemporary Topics (FIN 365/972 Section 1), Fall 2011.

Learning/Teaching Oriented Publications

Kiyotaki, N., & Wright, R. (1999). On Money as a Medium of Exchange.
Article AbstractReprint of article originally published in the 1989 "Journal of Public Political Economy," Vol. 97, pp. 927-954.
The Foundations Of Monetary Economics
Arouba, S., Davis, M., & Wright, R. Homework in Monetary Economics: Inflation, Home Production, and the Production of Homes.
Article AbstractWe study the effects of inflation in a monetary model extended to incorporate both household production and endogenous investment in housing. As long as cash is used in market transactions, inflation is a tax on market activity, but not on home production. Inflation thus causes substitution out of market and into household activity, encouraging investment in household capital, including housing. We show analytically that through this channel, inflation increases the value of housing scaled by either nominal output or the money supply. We document these relationships in the data, and investigate how a calibrated model can account for the facts.

Editorial and Reviewing Activities

North American Journal of Economics and Finance - Since January 2010
Editorial Board Member

Journal of Economic Theory - Since January 2008
Associate Editor

International Economic Review - January 2008 - December 2010
Editorial Board Member

American Economic Review - January 1998 - December 2000
Editorial Board Member

International Economic Review - January 1998 - December 2008

Review of Economic Dynamics - January 1997 - December 1999
Associate Editor

Macro Dynamics - Since January 1996
Advisory Editor

Bulletin of Economic Research - January 1995 - December 1999
Associate Editor

International Economic Review - January 1993 - December 1998
Editorial Board Member

Journal of Economic Theory - January 1990 - December 1998
Associate Editor

Canadian Journal of Economics - January 1989 - December 1992
Editorial Board Member

Journal of Economic Dynamics and Controls - January 1987 - December 1997
Associate Editor

Photograph of Randall Wright

Randall Wright

Professor | Finance
Ray Zemon Professor of Liquid Assets
(608) 262-3656
5262B Grainger Hall