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Time-inconsistency of no-bailout policies can create incentives for banks to take excessive risks and generate endogenous crises when the government cannot commit. However, at the outbreak of financial problems, usually the government is uncertain about their nature, and hence it may delay...
Persistent link: https://www.econbiz.de/10012459895
aggregate risk. We propose a theory to explain these risk exposures. We study a financial accelerator model where entrepreneurs … inefficiently high risk exposure for entrepreneurs …
Persistent link: https://www.econbiz.de/10012481941
risk. These connections lead to two different network structures. In a clustered network groups of financial institutions … expectations are low, they do not roll over the debt and there is systemic risk in that all institutions are early liquidated. We …
Persistent link: https://www.econbiz.de/10012462480
The direct financial impact of the financial crisis has been to deal a heavy blow to investment-based pensions; many workers lost a substantial portion of their retirement saving. The financial sector implosion produced an economic crisis for the rest of the economy via high unemployment and...
Persistent link: https://www.econbiz.de/10012461524
expected exchange rate depreciations (appreciations) for high (low) interest rate currencies, suggesting that disaster risk is … priced in currency markets. To study the price of disaster risk, we propose a simple structural model that includes both … Gaussian and disaster risk and can be estimated even in samples that do not contain disasters. Estimating the model over the …
Persistent link: https://www.econbiz.de/10012463588
heterogeneous attitudes towards crash risk. The less crash-averse insure the more crash-averse through the options markets that … literature: the tendency of stock index options to overpredict volatility and jump risk, the Jackwerth (2000) implicit pricing …
Persistent link: https://www.econbiz.de/10012470161
Financial innovation and overconfidence about asset values and the riskiness of new financial products were important factors behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral...
Persistent link: https://www.econbiz.de/10012462633
Persistent link: https://www.econbiz.de/10009688160
The objective of this paper is to show that the proposal by Froot and Thaler (1990) of delayed portfolio adjustment can account for a broad set of puzzles about the relationship between interest rates and exchange rates. The puzzles include: i) the delayed overshooting puzzle; ii) the forward...
Persistent link: https://www.econbiz.de/10012480203
valuations from consequences of exposure to financial markets. We demonstrate the empirical relevance of this theory for the … an especially informative metric for distinguishing the asset insulator theory from Modigliani-Miller or other standard …
Persistent link: https://www.econbiz.de/10012480626