Darracq Pariès, Matthieu; Faia, Ester; Rodriguez … - 2013 - This draft: November 2013
long run fragility. We build a macro model with banks subject to moral hazard and liquidity risk (sudden deposit … withdrawals): banks invest in risky government bonds as a form of capital buffer against liquidity risk. The model can replicate … the positive connection between sovereign and bank risk observed in the data. Central bank liquidity policy, through full …