Using data from the Business Surveys Unit of the European Commission, this paper examines how, and how accurately, people assess economic systems. As expected, respondents demonstrate to know their own situation better than the system wide one, and the past better than the future. Also,...

Through explicitly incorporating analysts' forecasts as observable factors in a dynamic arbitrage- free model of the yield curve, this paper proposes a framework for studying the impact of shifts in market sentiment on interest rates of all maturities. An empirical examination reveals that...

This paper estimates a DSGE model with learning to re-examine the evidence on time variation in post-war U.S. monetary policy. Several papers document a regime switch, by showing that policy changed from `passive' and destabilizing in the pre-1979 period to `active' and stabilizing in the...

In this paper we analyse the potential for lending booms in three biggest new EU member states (Czech Republic, Hungary and Poland) during the process of Euro adoption. Experience of old members (Greece, Ireland and Portugal) as well as econometric evidence speak in favour of strong increases in...

This article develops a model of bank runs and crises and analyses how the presence of a lender of last resort (LOLR) affects the solvency of the banking system. We obtain a one to one mapping from the depositors' equilibrium strategy to an optimal contract prevailing in the economy. The study...

In a framework closely related to Diamond and Rajan (2001) we characterize different financial systems and analyze the welfare implications of different LOLR-policies in these financial systems. We show that in a bank-dominated financial system it is less likely that a LOLR-policy that follows...

We present a model of bank passivity and regulatory failure. Banks with low equity positions have more incentives to be passive in liquidating bad loans. We show that they tend to hide distress from regulatory authorities and are ready to offer a higher rate of interest in order to attract...

Several studies have recommended reliance on subordinated debt as a tool for monitoring banks by investors and for enhancing depositors’ protection. However, subordinated debenture increases the level of leverage and thus the probability of costly failure. We propose a novel financial...

Argentina’s money and banking system was hit hard by the Great Depression. The banking sector was awash with bad assets that built up in the 1920s. Gold convertibility was suspended in December 1929, even before the crisis seriously damaged the core economies. Commonly, these events are seen...

This paper analyses the determinants of banks’ loan loss allowances for samples of US banks and three non-US samples: a group of 21 countries, Canada and Japan. The model includes fundamental (or non-discretionary) determinants of the allowance such as non-performing loans, and discretionary...