Since the early 1990s, the United States has borrowed heavily from its trading partners. This paper presents an analysis of the impact of an end to this borrowing, an end that could occur suddenly or gradually.

Two years after the rescue package for Greece provided by the European Union and the International Monetary Fund in May 2010, sovereign debt crises continue to threaten a growing number of countries in the eurozone. We develop a theory for analyzing these crises based on the research of Cole and...

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...

Developing risk in the life insurance industry requires prudent policy response to prevent broader economic damage.

Pay-with-promises compensation plans accumulate liability for future employee benefits, such as retiree health insurance. A simple economic model demonstrates that such plans can exacerbate fiscal crises faced by cities that experience external economic shocks, such as the departure of a major...

The decline of the heavy manufacturing industry in the American “Rust Belt” is often thought to have begun in the late 1970s, when the United States suffered a significant recession. But theory suggests, and data support, that the Rust Belt’s decline started in the 1950s when the...