José Jorge

A Primer on Global Games Applied to Macroeconomics and Finance

This paper shows how to solve global games applied to macroeconomics and finance. We ascertain the roles of public and private information for the determination of a unique equilibrium, and discuss the informative role of market prices. We examine the impact of public information on social welfare, comparing models with and without complementarities at the aggregate level.

Financial Intermediation in Economies with Investment Complementarities

When individual returns are increasing in the aggregate level of investment, decentralized individuals fail to internalize the positive externality of their investment on the return of others. This paper shows how financial intermediation mitigates this coordination failure for individuals with private information. When providing financial products with low risk, intermediaries induce individuals with unfavorable private information to invest more. The increase in investment generates positive externalities, thereby raising social welfare and making banks socially desirable.

Liquidity Freezes Under Adverse Selection

This paper analyses how adverse selection prevents liquidity from flowing from liquid to illiquid firms, thus impairing the transmission mechanism of policy. Contrary to the results in the literature, simply increasing the availability of liquidity does not solve the adverse selection problem. When there are aggregate shocks, authorities face a policy dilemma if their single policy tool is to manipulate the price of liquidity. We consider alternative policies which address the problem in a time-consistent fashion.