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 …

This paper presents a simple synthesis of Keynesian, monetary, and portfolio approaches to macroeconomic theory under …

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 …

this risk is hedged through nominal assets rather than through equities …

and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during … inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments … significantly larger nominal bond risk premia and borrow less in local currency …