Recent empirical evidence based on microdata panels indicates the importance of banks' balance sheets for the monetary transmission mechanism. This paper builds a dynamic general equilibrium model to analyse the macroeconomic consequences of changes in the cost of bank capital, and thus the cost...

This paper studies how non-Gaussian shocks affect risk premia in DSGE models approximated to second and third order. Based on an extension of the work by Schmitt-Grohe and Uribe to third order, we derive propositions for how rare disasters, stochastic volatility, and GARCH affect any risk premia...

This paper develops a fast method of computing arbitrary order perturbation approximations to bond prices in DSGE models. The procedure is implemented to third order where it can shorten the approximation process by more than 100 times. In a consumption-based endowment model with habits, it is...

This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom's CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data we find that payment splitting...

The credit risk that an individual bank poses to the rest of the financial system depends on its size, the type of exposures it has to the real economy, and its obligations to other institutions. This paper describes a system-wide risk management approach to calibrating individual banks' capital...

We examine the role of macroeconomic fluctuations, asset market liquidity, and network structure in determining contagion and aggregate losses in a stylised financial system. Systemic instability is explored in a financial network comprising three distinct, but interconnected, sets of agents -...

We consider finite horizon conditioning paths for nominal interest rates in New Keynesian monetary policy models. This is done two ways. First, we develop a simple way to use policy interventions in the form of interest rate shocks to achieve the conditioning path and show this yields a unique...

We propose a structural framework for the development of system-wide financial stress tests with multiple interacting contagion, amplification channels and heterogeneous financial institutions. This framework conceptualises financial systems through the lens of five building blocks: financial...

Systemic risk is a key concern for central banks charged with safeguarding overall financial stability. In this paper we investigate how systemic risk is affected by the structure of the financial system. We construct banking systems that are composed of a number of banks that are connected by...

We construct a heterogeneous agent-based model of the corporate bond market capturing the interaction of market maker behaviour, fund trading strategies, and cash allocation by investors in funds to study feedback effects and the impact of market changes. The model parameters are calibrated...