A General and Intuitive Envelope Theorem (2017, with A. Clausen)

Previous envelope theorems establish differentiability of value functions. Our techniques apply to all functions whose derivatives appear in first-order conditions. We derive first-order conditions involving the derivatives of (i) the Stackelberg follower’s policy in a Stackelberg leader’s problem, and (ii) a borrower’s value function and default cut-off policy function in an unsecured credit economy. Our techniques also accommodate optimization problems involving discrete choices, infinite horizon stochastic dynamic programming, and Inada conditions.

Money Cycles (2016, with A. Clausen)

Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money – under efficient monetary policy – is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity.

Envelope Theorems for Non-Smooth and Non-Concave Optimization (2012, with A. Clausen)

We study general dynamic programming problems with continuous and discrete choices and general constraints. The value functions may have kinks arising (1) at indifference points between discrete choices and (2) at constraint boundaries. Nevertheless, we establish a general envelope theorem: first-order conditions are necessary at interior optimal choices. We only assume differentiability of the utility function with respect to the continuous choices. The continuous choice may be from any Banach space and the discrete choice from any non-empty set.

Bank Deposits and Credit in General Equilibrium (2009)

We present a general equilibrium model of money with bank deposits and credit. Banks have two roles: first they act as safe-keepers of agents’ values, second they act as transaction operators because they are able to identify agents. We show that there exists an equilibrium where money co-exists with bank deposits although interest rates payed on deposits are positive. Further, we compare our model to the basic framework where banks only act as safe-keepers and are not allowed to issue loans.

Central Bank Design with Heterogeneous Agents (2009, with A. Berentsen)

We study alternative institutional arrangements for the determination of monetary policy in a general equilibrium model with heterogeneous agents, where monetary policy has redistributive effects. Inflation is determined by a policy board using either simple-majority voting, supermajority voting, or bargaining. We compare the equilibrium inflation rates to the first-best allocation.