In this paper we study whether policy makers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. We study this question in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of...

Indiana University, Bloomington, Ind., Oct. 2, 2008

A speech at the Global Interdependence Center (GIC) Abroad in Chile Conference, Universidad Adolfo Ibanez, Santiago, Chile, March 5, 2007

Indiana University, Bloomington, Ind., Oct. 2, 2008

A speech at the Global Interdependence Center (GIC) Abroad in Chile Conference, Universidad Adolfo Ibanez, Santiago, Chile, March 5, 2007

We identify financial stress regimes using a model that explicitly links financial variables with the macroeconomy. The financial stress regimes are identified using a large unbalanced panel of financial variables with an embedded method for variable selection and, empirically, are strongly...