We present a simple model where bank runs are possible and we analyse the role of subsidization of future investment in this setting. We find that such a policy exacerbates the short-run liquidity problem for banks. Moreover, we highlight that a ‘shift in expectations’ about the keeping of...

This Paper presents a new model of the East Asian crisis that combines three elements – multiple equilibria, investment collapse, and moral hazard – in a single simple account. We locate the causes of the crisis in poor financial regulation, highly-geared financial institutions, and implicit...

The recent financial crisis teaches important lessons regarding the lender-of-last resort function. Large swap lines extended in 2007-08 from the Federal Reserve to other central banks show that the classic concept of a national last-resort lender fails to address key vulnerabilities in a...

This paper examines the extent to which individual investors provide liquidity to the stock market, and whether they are compensated for doing so.We show that the ability of aggregate retail order imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced...

We study the extent to which a firm’s social capital, as measured by the intensity of a firm’s corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to five...

A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking...

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...

We use an estimated monetary business cycle model with search and matching frictions in the labor market and nominal price and wage rigidities to study four countries (the U.S., the U.K., Sweden, and Germany) during the financial crisis and the Great Recession. We estimate the model over the...

We use a repeated survey of an Italian bank’s clients to test whether investors’ risk aversion increases following the 2008 financial crisis. We find that both a qualitative and a quantitative measure of risk aversion increases substantially after the crisis. After considering standard...

During the recent financial crisis many countries resorted to protectionist measures to try to boost demand for domestically-produced goods. In this paper we explore the extent to which the adoption of protectionist measures led to retaliation by other countries undermining the increase in...