Most economic models used by central banks prior to the recent financial crisis omitted two fundamental elements: financial markets and liquidity measures. Those models therefore failed to foresee the crisis or understand the policy reaction that followed. In contrast to more orthodox models, we...

The Phillips curve refers to a negative (or inverse) relationship between unemployment and inflation in an economy—when unemployment is high, inflation tends to be low, and vice versa. This inflation-unemployment link has been observed in many countries during many times, most famously by...

Some have proposed wealth taxation as a means of reducing economic inequality, but such proposals are premature. While economic theory and data measurement have solid grounding when analyzing other forms of taxation, such as income or sales taxes, this is not the case for wealth Total estimates...

Knowing that bailouts are inevitable because governments will rescue firms whose collapse may cause systemic failure, financial institutions fail to internalize risks their investments impose on society, thereby creating a “risk externality.” This paper proposes that just as taxes are...

How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

How can banks and similar institutions design optimal compensation systems? Would such systems conflict with the goals of society? This paper considers a theoretical framework of how banks structure job contracts with their employees to explore three points: the structure of a socially optimal...

In this paper, we argue that the anticipation of bailouts creates incentives for banks to herd in the sense of making similar investments. This herding behavior makes bailouts more likely and potential crises more severe. Analyses of bailouts and moral hazard problems that focus exclusively on...

Policymakers concerned about rapid swings in commodity prices seek economic guidance about causal factors and future trends, but standard models—based on Harold Hotelling’s classic 1931 theory—are unable to explain actual data on price variability for a wide range of commodities. In this...

Observers argue that increased regulation and supervision added in response to the financial crisis will speed the decline of community banks. Determining if the rate of community bank consolidation is higher than it would have been absent this additional regulation requires a baseline estimate...