This paper argues that changes in the propagation of idiosyncratic shocks along firm networks are important to understanding variations in asset returns. When calibrated to match key features of supplier-customer networks in the United States, an equilibrium model in which investors have...

I study the problem of regulating a network of interdependent financial institutions that is prone to contagion when there is uncertainty regarding its precise structure. I show that such uncertainty reduces the scope for welfare-improving interventions. While improving network transparency...

I study 46 vintages of FRB/US, the principal macro model used by Federal Reserve Board staff for forecasting and policy analysis, as measures of real-time model uncertainty. I also study the implications of model uncertainty for the robustness of commonly applied, simple monetary policy rules. I...

This paper illustrates two types of pitfalls in using linearization methods. First, if constraints are linearized before deriving optimality conditions, the derived conditions are not correct up to first order. Second, even when the behavior of the economy is correct to the first order, applying...

This paper explores Knightian model uncertainty as a possible explanation of the considerable difference between estimated interest rate rules and optimal feedback descriptions of monetary policy. We focus on two types of uncertainty: (i) unstructured model uncertainty reflected in additive...

This paper explores the relationship between the health of the financial sector and the rest of the economy. We develop an indicator of financial sector health using a distance-to-default measure based on a Merton-style option pricing model. Our measure spans over three decades and appears to...

This paper examines the relationship between money market fund (MMF) risks and outcomes during crises, with a focus on the ABCP crisis in 2007 and the run on money funds in 2008. I analyze three broad types of MMF risks: portfolio risks arising from a fund's assets, investor risk reflecting the...

Which of the strategies for financing constraints in economic models is the most empirically plausible? This paper tests two commonly used models of financing constraints, costly state verification (Townsend, 1979) and moral hazard (Holmström and Tirole, 1997), using a comprehensive data set of...

While the Dodd Frank Act (DFA) broadens the regulatory reach to reduce systemic risks to the U.S. financial system, it does not address some important risks that could migrate to or emanate from entities outside the federal safety net. At the same time, it limits the types of interventions by...

This paper studies how the collapse of the asset backed securities (ABS) market during the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. This industry is...