The paper draws lessons from the experience of the past year for the conduct of central banks in the pursuit of macroeconomic and financial stability. Macroeconomic stability is defined as either price stability or as price stability and sustainable output or employment growth. Financial...

Motivated by the credit crisis 2007-08, this paper presents a theory of capital market banks ; banks that use derivative programs to exploit ineØ ciencies in the capital markets. I model banks. use of asset backed commercial paper (ABCP) programs as a local game, and analyse how these programs...

Banks operating under Value-at-Risk constraints give rise to a welldefined aggregate balance sheet capacity for the banking sector as a whole that depends on total bank capital. Equilibrium risk and market risk premiums can be solved in closed form as functions of aggregate bank capital. We...