The paper models the interaction between risk taking in the financial sector and central bank policy for the case of pure illiquidity risk. It is shown that, when bad states are highly unlikely, public provision of liquidity may improve the allocation, even though it encourages more risk taking...

Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing, 2008), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback between lender of last resort policy and incentives of...

China has set to increase the minimum retirement age, to ease the pressure from pension expenditure and the falling labor supply caused by the aging population. However, policy debates have so far neglected the crucial fact that families in China largely rely on retired grandparents for...