The boom-years preceding the "Great Recession" were a time of rapid innovation in the financial industry. We explore the idea that both the boom and eventual bust emerged from overoptimistic ex-pectations of efficiency-gains in the financial sector. We treat the bankruptcy costs facing...

What is the effect of the fear of future sovereign default on the economy of the defaulting country? The typical sovereign default model does not address this question. In this paper we wish to explore the possibility that changing expectations about future default themselves can lead to...