Correlation between the risks of portfolios of different commercial banks leads to too much risk taking from a social planner's perspective. The presence of a regulator omproves this risk-benefit allocation of the financial system. In this paper I show that first-best regulation also leads to...

In this paper, a new method is introduced to predict currency crises. The method models a continuous crisis index, based on depreciations and reserve losses. The fact that during currency crises, the behaviour of market participants differs from normal circumstances is modelled by means of model...