We derive a model in which a standard international capital asset pricing (ICAPM) model is nested within an ICAPM model with market imperfections. In the latter model an idiosyncratic stochastic factor affects the return of risky assets (over a risk-free rate) on top of the systematic component...

Most stock exchange regulators around the world reacted to the 2007-2009 crisis byimposing bans or regulatory constraints on short-selling. Short-selling restrictions wereimposed and lifted at different dates in different countries, often applied to different sets ofstocks and featured different...

An anticipated benefit of the prospective European Banking Union is stronger supervision of European banks. Another benefit would be enhanced resolution of banks in distress. While national governments confine themselves to the domestic effects of a banking failure, a European Resolution...

This discussion paper led to a publication in the <I>International Journal of Forecasting</I> (2013). Vol. 29, pages 676-694.<P> We extend the class of dynamic factor yield curve models for the inclusion of macro-economic factors. We benefit from recent developments in the dynamic factor literature for...</p></i>

We develop a macroeconomic framework where money issupplied against only few eligible securities in open marketoperations. The relationship between the policy rate,expected inflation and consumption growth is affected bymoney market conditions, i.e. the varying liquidity value ofeligible assets...

This paper explores the determinants of regional differences in interest rates based on a simple theoretical model of loan pricing. The model demonstrates how risks, costs, market concentration and scale economies jointly determine the bank's interest rates. Using recent data of the Indonesian...

Credit risk models should reflect the observation that the relevant value of collateral is generally not the average value of the asset over all possible states of nature. In most cases, the relevant value of collateral for the lender is its secondary market value in bad states of nature, where...

This discussion paper led to a publication in the <A HREF="http://onlinelibrary.wiley.com/doi/10.1002/jae.2358/abstract"><I>Journal of Applied Econometrics</I></A>, 2014, 29, pages 693-712.<P> Many economic studies on inflation forecasting have found favorable results when inflation is modeled as a stationary process around a slowly time-varying trend. In contrast, the existing...</p></i></a>

This paper has led to a publication in <I>Applied Financial Economics</I>, 2013, 23(9), 749-765.<P> This paper assesses the performance of a number of long-term interest rate forecast approaches, namely time series models, structural economic models, expert forecasts and combinations thereof. The...</p></i>

This discussion paper led to a publication in the 'Journal of Applied Econometrics'</I>, 2014, 29(1), 65-90.<P> We propose a new approach to the modelling of the term structure of interest rates. We consider the general dynamic factor model and show how to impose smoothness restrictions on the factor...</p>