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Cyril Monnet

1 February 2002
WORKING PAPER SERIES - No. 126
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Abstract
This paper describes optimal contracts in a dynamic costly state verification model with stochastic monitoring. An agent operates a risky project on behalf of a principal over several periods. Each period, the principal can observe the revenues from the project provided he incurs a fixed cost. We show that an optimal contract exists with the property that, in each period and for every possible revenue announcement by the agent, either the principal claims he entire proceeds from the project or promises to claim nothing in the future. This structure of payments enables the principal to minimize audit costs over the duration of the project. Those optimal contracts are such that the agent's expected income rises with time. Moreover, except in at most one period, the principal claims the entire returns of the project whenever audit occurs. We also provide conditions under which all optimal contracts must satisfy hese properties
JEL Code
D8 : Microeconomics→Information, Knowledge, and Uncertainty
C7 : Mathematical and Quantitative Methods→Game Theory and Bargaining Theory
1 July 2002
WORKING PAPER SERIES - No. 159
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Abstract
In most countries, the supply of paper money is controlled by a state institution. This paper provides an explanation for why such an arrangement is typically chosen. I use a deterministic matching model with a continuum of agents where enforcement is limited and where some agents produce public goods. Agents can also, at a cost, produce a distinguishable, intrinsically useless but perfectly durable good: notes. I call a note public if it is printed by an agent who produces public goods. In this framework, I prove that the socially optimal allocation is only implemented by a pattern of trade in which exchanges are effected using public notes.
JEL Code
D8 : Microeconomics→Information, Knowledge, and Uncertainty
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
1 July 2003
WORKING PAPER SERIES - No. 245
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Abstract
The role of money in society has been a controversial topic in economic theory over many years. Particular attention has been devoted to the analysis whether there should be competition in the supply of money, or whether this is best left to a governmental agency. This paper reviews the theoretical literature on these issues. It also gives an overview over some episodes of free banking where banks could issue currency themselves. Finally, we highlight several aspects in which today we have competition between issuers of money, namely in the international context, with electronic money, and in large value payments systems.
JEL Code
E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
N10 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations→General, International, or Comparative
5 May 2004
OCCASIONAL PAPER SERIES - No. 14
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Abstract
In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
22 July 2004
WORKING PAPER SERIES - No. 375
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Abstract
Exchanges and other trading platforms are often vertically integrated to carry out trading, clearing and settlement as one operation. We show that such vertical silos can prevent efficiency gains from horizontal consolidation of trading and settlement platforms to be realized. Independent of the gains from such consolidation, when costs of settlement are private information, there is no mechanism that achieves the merger of the vertical silos in a way that trading and settlement are produced efficiently after the merger. Furthermore, we show that such an ex-post efficient merger can always be implemented by delegating the operation of settlement platforms to agents.
JEL Code
C73 : Mathematical and Quantitative Methods→Game Theory and Bargaining Theory→Stochastic and Dynamic Games, Evolutionary Games, Repeated Games
G20 : Financial Economics→Financial Institutions and Services→General
G34 : Financial Economics→Corporate Finance and Governance→Mergers, Acquisitions, Restructuring, Corporate Governance
L22 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Organization and Market Structure
Network
ECB-CFS Research Network on "Capital Markets and Financial Integration in Europe"
28 February 2005
WORKING PAPER SERIES - No. 442
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Abstract
We describe a dynamic model of financial intermediation in which fundamental characteristics of the economy imply a unique equilibrium path of bank and financial market lending. Yet we also show that economies whose fundamental characteristics have converged may continue to have very different financial structures. Because setting up financial markets is costly in our model, economies that emphasize financial market lending are more likely to continue doing so in the future, all else equal.
JEL Code
L16 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Industrial Organization and Macroeconomics: Industrial Structure and Structural Change, Industrial Price Indices
G10 : Financial Economics→General Financial Markets→General
G20 : Financial Economics→Financial Institutions and Services→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative
22 August 2005
WORKING PAPER SERIES - No. 512
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Abstract
In this paper I show that a lax anti-counterfeiting policy is inconsistent with price stability. I use a deterministic matching model with no commitment and no enforcement. An intrinsically worthless but perfectly durable object called a 'note' can be produced by banks at a given cost, but also by nonbanks at a (possibly) higher cost. Counterfeiting occurs when nonbanks produce notes in equilibrium. When it is cheap for nonbanks to produce notes, or the technology used to detect counterfeits is poor, counterfeits are circulating in equilibrium and trade is only implemented with a growing stock of notes (thus creating inflation). Finally, I show that the highest welfare level is achieved when counterfeiting is costly, or when the detection of counterfeits is of high quality.
JEL Code
D8 : Microeconomics→Information, Knowledge, and Uncertainty
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
20 April 2006
WORKING PAPER SERIES - No. 604
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Abstract
We investigate the role of settlement in a dynamic model of a payment system where the ability of participants to perform certain welfare-improving transactions is subject to random and unobservable shocks. In the absence of settlement, the full information first-best allocation cannot be supported due to incentive constraints. In contrast, this allocation is supportable if settlement is introduced. This, however, requires that settlement takes place with a sufficiently high frequency.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
30 September 2009
WORKING PAPER SERIES - No. 1091
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Abstract
We study credible information transmission by a benevolent Central Bank. We consider two possibilities: direct revelation through an announcement, versus indirect information transmission through monetary policy. These two ways of transmitting information have very different consequences. Since the objectives of the Central Bank and those of individual investors are not always aligned, private investors might rationally ignore announcements by the Central Bank. In contrast, information transmission through changes in the interest rate creates a distortion, thus, lending an amount of credibility. This induces the private investors to rationally take into account information revealed through monetary policy.
JEL Code
D80 : Microeconomics→Information, Knowledge, and Uncertainty→General
E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy