Jonathan Chiu - Latest

• On the Welfare Effects of Credit Arrangements

  Staff Working Paper 2012-43 Jonathan Chiu, Mei Dong, Enchuan Shao

  This paper studies the welfare effects of different credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, a deviation from the Friedman rule is always sub-optimal. Moreover, credit arrangements can be welfare-reducing, because increased consumption by credit users will drive up the price level so that money users have to reduce consumption when facing a binding liquidity restraint.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Payment clearing and settlement systems JEL Code(s): E, E4, E40, E5, E50

• Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery

  Staff Working Paper 2011-30 Jonathan Chiu, Thorsten Koeppl

  We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): E, E6, G, G1
• November 17, 2011

  Liquidity Provision and Collateral Haircuts in Payments Systems

  Bank of Canada Review - Autumn 2011 James Chapman, Jonathan Chiu, Miguel Molico

  Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Financial stability, Payment clearing and settlement systems

• Innovation and Growth with Financial, and Other, Frictions

  Staff Working Paper 2011-25 Jonathan Chiu, Césaire Meh, Randall Wright

  The generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Potential output, Productivity JEL Code(s): E, E4, G, G2, O, O3, O4

• Central Bank Haircut Policy

  Staff Working Paper 2010-23 James Chapman, Jonathan Chiu, Miguel Molico

  We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Financial services, Financial system regulation and policies, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E4, E40, E5, E50

• Financial Intermediation, Liquidity and Inflation

  Staff Working Paper 2008-49 Jonathan Chiu, Césaire Meh

  This paper develops a search-theoretic model to study the interaction between banking and monetary policy and how this interaction affects the allocation and welfare. Regarding how banking affects the welfare costs of inflation: First, we find that, with banking, inflation generates smaller welfare costs.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework JEL Code(s): E, E4, E40, E5, E50
• June 21, 2008

  A Model of Tiered Settlement Networks

  Financial System Review - June 2008 James Chapman, Jonathan Chiu, Miguel Molico

  Content Type(s): Publications, Financial System Review articles

• Uncertainty, Inflation, and Welfare

  Staff Working Paper 2008-13 Jonathan Chiu, Miguel Molico

  This paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk, in a micro-founded search-theoretical monetary model. We calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households, and study the effects of inflation under the implied degree of market incompleteness.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits, Monetary policy framework JEL Code(s): E, E4, E40, E5, E50

• A Model of Tiered Settlement Networks

  Staff Working Paper 2008-12 James Chapman, Jonathan Chiu, Miguel Molico

  This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure.

  Content Type(s): Staff research, Staff working papers Topic(s): Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21

• Endogenously Segmented Asset Market in an Inventory Theoretic Model of Money Demand

  Staff Working Paper 2007-46 Jonathan Chiu

  This paper studies the effects of monetary policy in an inventory theoretic model of money demand. In this model, agents keep inventories of money, despite the fact that money is dominated in rate of return by interest bearing assets, because they must pay a fixed cost to transfer funds between the asset market and the goods market.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E31, E4, E41, E5, E50