We develop a model in which a financial intermediary’s investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking.
Staff working papers
A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries.
From 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household's marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially.
This paper analyses the Canadian economy for the post 1960 period. It uses an accounting procedure developed in Chari, Kehoe, and McGrattan (2006). The procedure identifies accounting factors that help align the predictions of the neoclassical growth model with macroeconomic variables observed in the data.