Financial Stability

Markus K. Brunnermeier · Yuliy Sannikov

This paper solves the full, global equilibrium dynamics (not just a linearization around the steady state) of an economy in which financially constrained "experts" intermediate capital, showing that …

Gary Koop · Dimitris Korobilis

This 2014 European Economic Review paper by Gary Koop and Dimitris Korobilis develops a time-varying-parameter factor-augmented VAR (TVP-FAVAR) with dynamic model averaging (DMA) to construct a …

Allen N. Berger · Onesime Epouhe · Raluca A. Roman

This paper examines the effects of the Troubled Asset Relief Program (TARP) and the Paycheck Protection Program (PPP)—two government bailout programs during the Global Financial Crisis and the …

Emmanuel Farhi · Iván Werning

This paper builds a theory of macroprudential policy whose only friction is nominal rigidity in goods and labor markets, possibly combined with a constraint on monetary policy such as the zero lower …

Sang Rae Kim

This paper studies when a bank is more effective as a supplier of privately produced money-like safe assets (repo, commercial paper), finding that a bank produces safer, more liquid assets when (1) …

Douglas W. Diamond · Philip H. Dybvig

A three-period model in which households face a privately observed, uninsurable risk of needing to consume early, and where a demand deposit contract lets banks share that risk better than any market …

Ngoc-Sang Pham · Alexis Akira Toda

Tirole (1985) studied an overlapping generations model with capital accumulation and showed that the emergence of asset bubbles can resolve the capital over-accumulation problem when the economy is …

Fabian Gogolin · Ivan Lim · Francesco Vallascas

This paper studies what happens to local banking markets when a small bank suffers a successful cyberattack, using a stacked difference-in-differences design on 16 cyber incidents at small U.S. banks …

Christopher A. Sims

Applying the fiscal theory of the price level's corporate-finance analogy -- fiat (own-currency) government debt behaves like equity, while dollar-denominated or indexed debt behaves like conventional …

Giancarlo Corsetti · Bartosz Maćkowiak

This paper builds a model in which a currency crisis is triggered by a "fiscal imbalance" -- an anticipated decline in the government's future primary surpluses -- and shows that the size and maturity …

Emanuele Ciola · Gabriele Tedeschi

This paper investigates how the endogenous structure of credit, deposit, and interbank networks shapes business cycle fluctuations and large financial crises in the U.S. economy.

François R. Velde

In 1716-1720, John Law restructured French public finance by converting most of the government's debt into equity in a trading-and-tax-farming conglomerate and replacing silver coin with paper money; …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

This paper builds a general-equilibrium model in which a currency crisis is triggered by prospective government deficits and shows that governments finance the resulting fiscal costs mainly through …

Daniel Barth · R. Jay Kahn

The U.S. Treasury market is the deepest and most liquid fixed-income market in the world, yet in March 2020 it experienced unprecedented dysfunction—widening bid-ask spreads, skyrocketing repo rates, …

Kristian S. Blickle · Sarah N. Hamerling · Donald P. Morgan

Using FEMA disaster declarations matched to SHELDUS property-damage estimates and Call Report data for 1995–2018, this paper finds that weather disasters — even at their most severe — have had modest …

Mauricio Barbosa-Alves · Javier Bianchi · César Sosa-Padilla

The paper extends the Cole-Kehoe (2000) sovereign rollover crisis model to include international reserves and derives the joint optimal management of sovereign debt and reserves in a small open …

Maximilian Grimm · Òscar Jordà · Moritz Schularick · Alan M. Taylor

This paper provides the first long-run causal evidence that a persistently loose stance of monetary policy — defined as extended periods of low interest rates relative to the neutral rate — …

Toni Ahnert · Kristin Forbes · Christian Friedrich · Dennis Reinhardt

Macroprudential rules on banks' foreign currency exposure do what they are meant to do -- cross-border FX borrowing by banks falls by roughly a third, and bank stock returns become markedly less …

George J. Bratsiotis · Kasun D. Pathirage

This paper introduces a four-agent estimated New Keynesian DSGE model—comprising banked simple households, underbanked simple households, firm owners, and bank owners—to examine agent-specific and …

Frédéric Boissay · Fabrice Collard · Jordi Galí · Cristina Manea

This paper asks whether a central bank should deviate from strict inflation targeting (SIT) to promote financial stability, studying the question in a textbook New Keynesian model augmented with …

Cristina Arellano · Yan Bai · Gabriel Mihalache

This paper develops a New Keynesian small open economy model with endogenous sovereign default — the NK-Default framework — and uses it to study the interplay between monetary policy and sovereign …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

Studies how governments finance the fiscal costs of "twin" currency-and-banking crises and shows that debt devaluation and implicit or explicit fiscal reform, not just money printing, can explain why …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

Argues that the 1997 Asian currency crisis was driven by large prospective government deficits -- the anticipated future fiscal cost of bailing out failing banking systems -- rather than by the …

Hubert János Kiss · Alfonso Rosa García · Lukas Voellmy

This paper uses laboratory experiments to evaluate the effectiveness of two liquidity management tools — redemption fees and redemption gates — in reducing runs on money market funds (MMFs), …

José E. Gutiérrez

This paper provides a contract-theoretic rationale for the special liquidity regulation of bank credit lines—a form of lending that has received little attention in the regulatory literature despite …

Joao Ayres · Gaston Navarro · Juan Pablo Nicolini · Pedro Teles

This paper asks whether sovereign debt crises can be self-fulfilling — triggered by lenders' expectations of default rather than by weak fiscal fundamentals alone — and whether such crises are …

Anusha Chari · Karlye Dilts-Stedman · Kristin Forbes

A country's macroprudential stance looks irrelevant to portfolio flows on average, but that average hides the tails. Countries with tighter ex-ante regulation see larger bond and equity outflows in …

Ivan Lim · Jens Hagendorff · Seth Armitage

Using closures of U.S. bank regulatory offices between 2002 and 2013 as difference-in-differences shocks to the physical proximity between supervisors and the community banks they oversee, the paper …

C. Bora Durdu · Alex Martin · Ilknur Zer

US monetary tightening raises the probability of a banking crisis abroad, but only where the exposure to the United States is direct -- heavy bilateral trade or large dollar-denominated liabilities. …

Yuliyan Mitkov · Ulrich Schüwer

This paper documents that U.S. metropolitan statistical areas with higher income inequality have a larger share of failed banks, higher average bank default probabilities, and greater dispersion of …

Stephen G. Cecchetti · Tommaso Mancini-Griffoli · Machiko Narita · Ratna Sahay

Across nearly 1,000 listed financial firms in 21 countries, prolonged monetary easing raises leverage -- and for non-US firms, sustained easing in the United States raises leverage by more than easing …