Marking to Market versus Taking to Market
While the debate on cost and market-value accounting has been raging for years, economists lack a framework allowing a comparison of their relative...
Discussion Papers
Endogenous Market Making and Network Formation
This paper proposes a theory of intermediation in which intermediaries emerge endogenously as the choice of agents. In contrast to the previous...
Parameterized Games, Minimal Nash Correspondences, and Connectedness
Economics and game theory are replete with examples of parameterized games. We show that all minimal Nash payoff USCOs belonging to the Nash...
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...
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...
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...
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...
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...
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...
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...
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...
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...
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...
