Modern banking systems are highly interconnected. Despite their various benefits, the linkages that exist between banks carry the risk of contagion. In this paper we investigate how banks decide on direct balance sheet linkages and the implications for contagion risk. In particular, we model a...

The paper sets out theory and evidence for the equilibrium determination of the nominal interest rate. We test the cash-in-advance economy using US postwar data and find cointegration of the interest rate, inflation, unemployment and the money supply, using either M2 or M1 monetary aggregates,...

The paper introduces for the most frequently used three- dimensional panel data sets several random effects model specifications. It derives appropriate estimation methods for the balanced and unbalanced cases and deals with some extensions as well. An application is also presented where the...

We study the problem of torts in a framework where a firm's accident adversely impacts all firms in the industry because of the presence of industry reputation effects. Industry reputation effects lead to interdependence among firms and give rise to strategic firm behavior. We characterize the...