Economics Seminar (2020-04)

Topic: Toxic Assets and Market Freezes

Speaker: Randall Wright, University of Wisconsin- Madison

Time: April 24, Friday. 09:00a.m. - 10:30a.m.

Location: Microsoft Teams Online Conference Room

Abstract:

We study economies where some assets are toxic -i.e., they have negative returns - but still have positive prices because they provide liquidity as payment instruments or as collateral. Even without changes in fundamentals markets can, as a self-fulfilling prophecy, freeze and thaw recurrently: toxic assets stop trading for a spell, then restart. We show markets without toxic assets might have hot and cold spells, where prices and quantities áuctuate, but cannot freeze and thaw (at least without nonconvexities.). Freezes can occur when there are toxic assets plusflat currency, and whether these assets trade for goods or trade for money.

Introduction:

Randall Wright is the Ray B. Zemon Chair in 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 publications. 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).

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