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Periodic, Complete‐Participation Trade In The Lagos‐Rocheteau Model

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  • Mouhua Liao

Abstract

This paper contributes to a recent policy discussion regarding the costs and benefits of setting up a centralized electronic trading platform to replace over‐the‐counter (OTC) markets. We modify the Lagos and Rocheteau (2009, henceforth LR) asset trading model by replacing their investor‐dealer random matching and bilateral trade with a centralized competitive market that opens periodically. This arrangement preserves the main tension and trade‐off in LR. We then analyse and quantify when to introduce a centralized market and how frequently it should open in order to make it as efficiently as the decentralized OTC market in LR.

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  • Mouhua Liao, 2019. "Periodic, Complete‐Participation Trade In The Lagos‐Rocheteau Model," Bulletin of Economic Research, Wiley Blackwell, vol. 71(3), pages 533-548, July.
    • Handle: RePEc:bla:buecrs:v:71:y:2019:i:3:p:533-548
    DOI: 10.1111/boer.12195
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