NBER Publications by Chris Edmond

This paper develops a consumption-based asset pricing model to explain and quantify the aggregate implications of a frictional financial system, comprised of many financial markets partially integrated with one-another. Each of our micro financial markets is inhabited by traders who are specialized in that market's type of asset. We specify exogenously the level of segmentation that ultimately determines how much idiosyncratic risk traders bear in their micro market and derive aggregate asset pricing implications. We pick segmentation parameters to match facts about systematic and idiosyncratic return volatility. We find that if the same level of segmentation prevails in every market, traders bear 20% of their idiosyncratic risk. With otherwise standard parameters, this benchmark model de...

Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference shocks or price-setting frictions. In recessions, heterogeneous labor productivity shocks raise income dispersion, lower the price elasticity of demand, and increase imperfectly competitive firms' optimal markups. The calibrated model explains not only many cyclical features of markups, but also cyclical, long-run and cross-state patterns of standard business cycle aggregates.

We exposit the link between money, velocity and prices in an inventory-theoretic model of the demand for money and explore the extent to which such a model can account for the short-run volatility of velocity, the negative correlation of velocity and the ratio of money to consumption, and the resulting stickiness' of the aggregate price level relative to a benchmark model with constant velocity. We find that an inventory-theoretic model of the demand for money is a natural framework for understanding these aspects of the dynamics of money, velocity and prices in the short run.