Insecure Debt
We analyse bank runs under fundamental and asset liquidity risk, adopting a realistic description of bank default. We obtain an unique run equilibrium...
Discussion Papers
Why risk is so hard to measure
This paper analyzes the robustness of standard risk analysis techniques, with a special emphasis on the specifications in Basel III. We focus on the...
When Arm’s Length Is Too Far. Relationship Banking over the Credit Cycle
Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect credit constraints of small and medium...
Dynamic Equilibrium with Rare Events and Heterogeneous Epstein-Zin Investors
We consider a general equilibrium Lucas (1978) economy with one consumption good and two heterogeneous Epstein-Zin investors. The output is subject to...
News Shocks and Asset Prices
We study the importance of anticipated shocks (news) for understanding the comovement between macroeconomic quantities and asset prices. We find that...
The Dynamics of Financially Constrained Arbitrage
We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital, liquidity, and asset prices...
Great Expectations, Veto Players, and the Changing Politics of Banking Crises
How have the politics of banking crises changed over the long run? Unlike existing static accounts, we offer a dynamic theory emphasizing how the...
Brave New World? Macro Prudential Policy and the new Political Economy of The Federal Reserve
The Financial Crisis that started in 2007 ushered in new responsibilities for central banks, particularly for what is termed “macro-prudential policy...
Information Asymmetries, Volatility, Liquidity, and the Tobin Tax
We develop a tractable model in which trade is generated by asymmetry in agents' information sets. We show that, even if news are not generated by a...
The Optimal Consumption Function in a Brownian Model of Accumulation Part B: Existence of Solutions of Boundary Value Problems
In Part A of the present study, subtitled 'The Consumption Function as Solution of a Boundary Value Problem' Discussion Paper No. TE/96/297, STICERD...
Destabilizing carry trades
We offer a model of currency carry trades in which carry traders earn positive excess returns if they successfully coordinate on supplying excessive...
Does the Bond-Stock Earning Yield Differential Model Predict Equity Market Corrections Better Than High P/E Models?
In this paper, we extend the literature on crash prediction models in three main respects. First, we relate explicitly crash prediction measures and...
Moral Hazard and Debt Maturity
We present a model of the maturity of a bank’s uninsured debt. The bank borrows funds and chooses afterwards the riskiness of its assets. This moral...
The Economics of Collateral
In this paper we study how the use of collateral is evolving under the influence of regulatory reform and changing market structure. We start with a...
Model Risk of Risk Models
This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models...
Diversification and Financial Stability
This paper contributes to a growing literature on the pitfalls of diversification by shedding light on a new mechanism under which, full risk...
