Randall Wright
Encyclopedia
Randall D. Wright is a Canadian academic macroeconomist who advanced the fields of monetary economics and labor economics through his role in the development of matching theory
.
in Economics at the University of Manitoba
in 1979 and a Ph.D.
in Economics at the University of Minnesota
in 1986. He was awarded an honorary M.A.
by the University of Pennsylvania
in 1990. His first position was as an Assistant Professor at Cornell from 1984 to 1987. He then moved to the University of Pennsylvania, where he became a full professor in 1994, later becoming the James Joo-Jin Kim Professor of Economics. In 2009, Wright accepted a position in the Economics Department at University of Wisconsin–Madison
. He is at the same time the Ray B. Zemon Chair in Liquid Assets in the Wisconsin School of Business
' Department of Finance, Investment and Banking.
In addition to his academic position, Wright is a Research Associate at the Federal Reserve Bank of Cleveland
, the Federal Reserve Bank of Philadelphia
, the Bank of Canada
, NBER, and Paris II. Wright was elected a Fellow of the Econometric Society
in 1997.
Wright was the editor of the International Economic Review
in 1998-2008 and served on the Board of Editors of the American Economic Review
in the period 1998-2000.
, pioneered the use of search theory
in monetary economics. The application of search theory to macroeconomics would later be known as matching theory. Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential, which contrasts with earlier reduced form
approaches to money in macroeconomics, such as putting money in the utility function or imposing cash-in-advance constraint
s. These earlier ways of modeling money's role did not show explicitly how it helps overcome informational, spatial, or temporal frictions. Search-theoretic models, on the other hand, are based on explicit descriptions of specialization
, the pattern of meetings, and the information structure.
Kiyotaki and Wright (1989) was the first attempt to use a search-theoretic model to endogenous
ly determine which commodities would become media of exchange, i.e. commodity money
. Later, Kiyotaki and Wright (1991) constructed an alternative search-based model to prove that fiat money
can be valued as a medium of exchange
even if it has a rate of return
that is inferior to other available assets. The application of these theories emerged in Kiyotaki and Wright (1993), when the authors developed a tractable model of the exchange process that captures the "double coincidence of wants problem" in a pure barter
setup. In this model, the essential function of money is its role as a medium of exchange. The model can be used to address issues in monetary economics, such as the interaction between specialization and monetary exchange, and the possibility of equilibria with multiple fiat currencies.
A shortcoming of search-theoretic models of money is that these models becomes intractable without very strong assumptions, and are therefore impractical for the analysis of monetary policy
. Lagos and Wright (2005) attempt to overcome this shortcoming by proposing a more general, yet still tractable, framework for the analysis of monetary policy.
Matching theory (macroeconomics)
In macroeconomics, matching theory, also known as search and matching theory,is a mathematical framework attempting to describe the formation of mutually beneficial relationships over time. It offers a way of modeling markets in which frictions prevent instantaneous adjustment of the level of...
.
Biography
Wright obtained a B.A.Bachelor of Arts
A Bachelor of Arts , from the Latin artium baccalaureus, is a bachelor's degree awarded for an undergraduate course or program in either the liberal arts, the sciences, or both...
in Economics at the University of Manitoba
University of Manitoba
The University of Manitoba , in Winnipeg, Manitoba, Canada, is the largest university in the province of Manitoba. It is Manitoba's most comprehensive and only research-intensive post-secondary educational institution. It was founded in 1877, making it Western Canada’s first university. It placed...
in 1979 and a Ph.D.
Ph.D.
A Ph.D. is a Doctor of Philosophy, an academic degree.Ph.D. may also refer to:* Ph.D. , a 1980s British group*Piled Higher and Deeper, a web comic strip*PhD: Phantasy Degree, a Korean comic series* PhD Docbook renderer, an XML renderer...
in Economics at the University of Minnesota
University of Minnesota
The University of Minnesota, Twin Cities is a public research university located in Minneapolis and St. Paul, Minnesota, United States. It is the oldest and largest part of the University of Minnesota system and has the fourth-largest main campus student body in the United States, with 52,557...
in 1986. He was awarded an honorary M.A.
Master of Arts (postgraduate)
A Master of Arts from the Latin Magister Artium, is a type of Master's degree awarded by universities in many countries. The M.A. is usually contrasted with the M.S. or M.Sc. degrees...
by the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
in 1990. His first position was as an Assistant Professor at Cornell from 1984 to 1987. He then moved to the University of Pennsylvania, where he became a full professor in 1994, later becoming the James Joo-Jin Kim Professor of Economics. In 2009, Wright accepted a position in the Economics Department at University of Wisconsin–Madison
University of Wisconsin–Madison
The University of Wisconsin–Madison is a public research university located in Madison, Wisconsin, United States. Founded in 1848, UW–Madison is the flagship campus of the University of Wisconsin System. It became a land-grant institution in 1866...
. He is at the same time the Ray B. Zemon Chair in Liquid Assets in the Wisconsin School of Business
Wisconsin School of Business
The Wisconsin School of Business is the business school of University of Wisconsin–Madison, located in Grainger Hall. Founded in 1900, it has more than 35,000 alumni. The undergraduate program prepares students for business careers, while its Master of Business Administration program is based on...
' Department of Finance, Investment and Banking.
In addition to his academic position, Wright is a Research Associate at the Federal Reserve Bank of Cleveland
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is the Cleveland-based headquarters of the U.S. Federal Reserve System's Fourth District. The district is composed of Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia. It has branch offices in Cincinnati and Pittsburgh....
, the Federal Reserve Bank of Philadelphia
Federal Reserve Bank of Philadelphia
The Federal Reserve Bank of Philadelphia, headquartered in Philadelphia, Pennsylvania, is responsible for the Third District of the Federal Reserve, which covers eastern Pennsylvania, the 9 southern counties of New Jersey, and Delaware...
, the Bank of Canada
Bank of Canada
The Bank of Canada is Canada's central bank and "lender of last resort". The Bank was created by an Act of Parliament on July 3, 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the Government of Canada...
, NBER, and Paris II. Wright was elected a Fellow of the Econometric Society
Econometric Society
The Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
in 1997.
Wright was the editor of the International Economic Review
International Economic Review
The International Economic Review, is a quarterly peer-reviewed scientific journal in economics published by the Economics Department of the University of Pennsylvania and Osaka University...
in 1998-2008 and served on the Board of Editors of the American Economic Review
American Economic Review
The American Economic Review is a peer-reviewed academic journal of economics publishing seven issues annually by the American Economic Association. First published in 1911, it is considered one of the most prestigious journals in the field. The current editor-in-chief is Penny Goldberg . The...
in the period 1998-2000.
Research contribution
Wright, together with co-author Nobuhiro KiyotakiNobuhiro Kiyotaki
is a Japanese economist and professor at Princeton University especially known for proposing several models that provide deeper microeconomic foundations for macroeconomics, some of which play a prominent role in New Keynesian macroeconomics.-Career:...
, pioneered the use of search theory
Search theory
In microeconomics, search theory studies buyers or sellers who cannot instantly find a trading partner, and must therefore search for a partner prior to transacting....
in monetary economics. The application of search theory to macroeconomics would later be known as matching theory. Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential, which contrasts with earlier reduced form
Reduced form
In statistics, and particularly in econometrics, the reduced form of a system of equations is the result of solving the system for the endogenous variables. This gives the latter as a function of the exogenous variables, if any...
approaches to money in macroeconomics, such as putting money in the utility function or imposing cash-in-advance constraint
Cash-in-advance constraint
The cash-in-advance constraint is an idea used in economic theory to capture monetary phenomena...
s. These earlier ways of modeling money's role did not show explicitly how it helps overcome informational, spatial, or temporal frictions. Search-theoretic models, on the other hand, are based on explicit descriptions of specialization
Division of labour
Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and likeroles. Historically an increasingly complex division of labour is closely associated with the growth of total output and trade, the rise of capitalism, and of the complexity of industrialisation...
, the pattern of meetings, and the information structure.
Kiyotaki and Wright (1989) was the first attempt to use a search-theoretic model to endogenous
Endogenous
Endogenous substances are those that originate from within an organism, tissue, or cell. Endogenous retroviruses are caused by ancient infections of germ cells in humans, mammals and other vertebrates...
ly determine which commodities would become media of exchange, i.e. commodity money
Commodity money
Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money....
. Later, Kiyotaki and Wright (1991) constructed an alternative search-based model to prove that fiat money
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
can be valued as a medium of exchange
Medium of exchange
A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.By contrast, as William Stanley Jevons argued, in a barter system there must be a coincidence of wants before two people can trade – one must want exactly what the other has to offer, when and...
even if it has a rate of return
Rate of return
In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or...
that is inferior to other available assets. The application of these theories emerged in Kiyotaki and Wright (1993), when the authors developed a tractable model of the exchange process that captures the "double coincidence of wants problem" in a pure barter
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
setup. In this model, the essential function of money is its role as a medium of exchange. The model can be used to address issues in monetary economics, such as the interaction between specialization and monetary exchange, and the possibility of equilibria with multiple fiat currencies.
A shortcoming of search-theoretic models of money is that these models becomes intractable without very strong assumptions, and are therefore impractical for the analysis of monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
. Lagos and Wright (2005) attempt to overcome this shortcoming by proposing a more general, yet still tractable, framework for the analysis of monetary policy.
Sources
- Nobuhiro Kiyotaki and Randall Wright (1989), "On Money as a Medium of Exchange," Journal of Political Economy, 97, 927-54.
- Nobuhiro Kiyotaki and Randall Wright (1991), "A Contribution to the Pure Theory of Money," Journal of Economic Theory, 53, 215-35.
- Nobuhiro Kiyotaki and Randall Wright (1993), "A search-theoretic approach to monetary economics," American Economic Review, 83 (1), 63-77.
- Ricardo Lagos and Randall Wright (2005), "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, 113, 463-84.