This paper uses the framework of arbitrage-pricing theory to study the relationship between liquidity risk and sovereign bond risk premia. The London Stock Exchange in the late 19th century is an ideal laboratory in which to test the proposition that liquidity risk affects the price of sovereign...

Since the early 1980s, long-term government bond yields in the euro zone have declined, in line with those in other industrialized countries. In this paper, the authors examine the monetary and fiscal policies adopted by European countries on the path to Economic and Monetary Union (EMU), and...

This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. Firms are identical ex ante but differ ex post due to different realizations of firm-specific...

This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which...

One way of internalizing the externalities that each individual bank imposes on the rest of the financial system is to impose capital surcharges on them in line with their systemic importance. Given the complexity of the financial system and the resulting difficulties in measuring systemic...

We offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Following Morris and Shin (2009), we introduce funding liquidity risk as an endogenous outcome of the interaction between market...

Recent events in financial markets have underlined the importance of analyzing the link between the financial health of banks and real economic activity. This paper contributes to this analysis by constructing a dynamic general equilibrium model in which the balance sheet of banks affects the...