This paper investigates the optimal monetary policy response to a shock to collateral when policymakers act under discretion and face model uncertainty. The analysis is based on a New Keynesian model where banks supply loans to transaction constrained consumers. Our results confirm the...

The extensive public support measures for the financial sector have been key for the management of the current financial crisis. This paper gives a detailed description of the measures taken by central banks and governments and attempts a preliminary assessment of the effectiveness of such...

This paper uses a factor-augmented vector autoregressive model (FAVAR) estimated on U.S. data in order to analyze monetary transmission via private sector balance sheets, credit risk spreads and asset markets in an integrated setup and to explore the role of monetary policy in the three...

The Eurosystem’s main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm...

This paper studies the implications of cross-border financial integration for financial stability when banks' loan portfolios adjust endogenously. Banks can be subject to sectoral and aggregate domestic shocks. After integration they can share these risks in a complete interbank market. When...

"Arbitrage CDOs" have recorded an explosive growth during the years before the outbreak of the financial crisis. In the present paper we discuss potential sources of such arbitrage opportunities, in particular arbitrage gains due to mispricing. For this purpose we examine the risk profiles of...

This paper studies the nature of spillover effects in bank lending flows from advanced to the emerging market economies and identifies specific channels through which such effects occur. Based on a gravity model we examine a panel data set on cross-border bank flows from 17 advanced to 28...

The crisis on international financial markets that started in 2007 has shown the potential links between the financial sector and the real economy. Exports and foreign direct investment (FDI) have declined, presumably not only because of a lack of demand, but also because of restricted access of...

Assessments of investors’ risk appetite/aversion stance via indicators often yields results which seem unsatisfactory (see e.g. Illing and Aaron (2005)). Understanding how such indicators work therefore seems essential for further improvements. The present paper seeks to contribute to this...