We propose a new, data-based test for the presence of biased financial advice when households choose between fixed and adjustable rate mortgages. If households are wary, the relative cost of the two types should be a sufficient statistic for a household contract choice: the attributes of the...

Banks and other lenders often transfer credit risk to liberate capital for further loan intermediation. This paper aims to explore the design, prevalence and effectiveness of credit risk transfer (CRT). The focus is on the costs and benefits for the efficiency and stability of the financial...

Open-end mutual funds face redemptions by investors, but the sale of the underlying assets depends on the portfolio decision of asset managers. If asset managers use their cash holding as a buffer to meet redemptions, they can mitigate fire sales of the underlying asset. If they hoard cash in...

When global investors go into emerging markets or get out of them, how do they differentiate between economies? Has this behaviour changed since the crisis of 2008 to reflect a "new normal"? We consider these questions by focusing on sovereign risk as reflected in monthly returns on credit...

We develop a parsimonious model to study the effect of regulations aimed at reducing counterparty risk on the structure of over-the-counter securities markets. We find that such regulations promote entry of dealers, thus fostering competition and lowering spreads. Greater competition, however,...

Central banks' frameworks for managing foreign reserves have traditionally balanced a triad of objectives: liquidity, safety and return. Pursuing these objectives involves explicit trade-offs. More of an emphasis on returns, for instance, may require central banks to sacrifice some of the safety...

This paper investigates the scarcity effects of quantitative easing (QE) policies, drawing on intra-day transaction-level data for German government bonds, purchased under the public sector purchase program (PSPP) of the ECB/Eurosystem. This paper is the first to match high-frequency QE purchase...

Long-term interest rates in Europe fell sharply in 2014 to historically low levels. This development is often attributed to yield-chasing in anticipation of quantitative easing by the European Central Bank. We examine how portfolio adjustments by long-term investors aimed at containing duration...

We theoretically analyze the interactions between asset prices, nancial speculation, and macroeconomic outcomes when output is determined by aggregate demand. If the interest rate is constrained, a rise in the risk premium lowers asset prices and generates a demand recession. This reduces...

Long-term interest rates in Europe fell sharply in 2014 to historically low levels. This development is often attributed to yield-chasing in anticipation of quantitative easing (QE) by the European Central Bank (ECB). We examine how portfolio adjustments by long-term investors aimed at...