Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints.
Bank resolution is costly. In the United States, the Federal Deposit Insurance Corporation (FDIC) typically resolves failing banks by auction.
Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio AllocationDeposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper.
The most extreme events, such as economic crises, are rare but often have a great impact. It is difficult to precisely determine the likelihood of such events because the sample is small.
Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon.
Liquidity demands in real-time gross settlement payment systems can be enormous. To reduce the liquidity requirement, central banks around the world have implemented liquidity savings mechanisms (LSMs).
We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis.
Cash gives users a high level of privacy when making payments, but the use of cash to make payments is declining. People increasingly use debit cards, credit cards or other methods to pay.
Many derivatives markets use collateral requirements calculated with industry-standard but dated methods that are not designed with systemic risk in mind. This paper explores whether the conservative nature of conventional collateral requirements outweighs their lack of consideration of systemic risk.
A consumer discloses information to a multi-product seller, which learns about the consumer’s preferences, sets prices, and makes product recommendations. While the consumer benefits from accurate product recommendations, the seller may use the information to price discriminate.