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Noted financial economist Robert M. Townsend presented a series of lectures for faculty and graduate students presented by The Fama-Miller Center for Research in Finance and the Becker Friedman Institute May 16-23. Townsend’s talks centered on two major themes: the design of payment systems and monetary policy and financial platforms and intermediation.
In the first two talks, Townsend, a Fama-Miller Visitor and Becker Friedman Institute Distinguished Research Fellow, focused on how micro-founded general equilibrium models of liquidity and money provide rich frameworks for understanding institutions and markets and for organizing data, with important operational implications for payment systems and monetary policy.
As motivation for the discussion, the talk used recent issues in the U.S. and in developing countries, including
- expanded balance sheets of the Federal Reserve and its impact on payments;
- e-money and access and design of financial systems in developing countries;
- risk in liquidity and clearing;
- innovations in financial systems and monetary policy;
- segmentation and coordination; and
- financial fragmentation and centrality.
The second set of talks discussed how economic theory provides guidance from first principles on the design and operation of financial platforms. Townsend, the Elizabeth & James Killian Professor of Economics at MIT, referenced recent developments such as
- Dodd-Frank regulation after the financial crisis;
- innovation and the emergence of e-commerce and the P2P platforms in China
- building financial systems from scratch and analyzing the resulting micro data, as in Thailand; and
- innovation on the edges with factoring in Mexico and India.
Townsend discussed commonalities across these phenomena and the need for a core theory that addresses them. He also touched on:
- good and bad exchange rules and forms of competition, with a general equilibrium focus;
- platforms with private information;
- broker-dealers and competition in contracts; and
- alternative financial platforms and identifying key obstacles and features of the environment.