We study liquidity transfers between banks through the interbank borrowing and asset sale markets when, (i) surplus banks providingliquidity have market power, ii) there are frictions in the lendingmarket due to moral hazard, and, (iii) assets are bank-specific. We show that when the outside...

In the years prior to the financial crisis of 2008-09, the Federal Reserve and other central banks emphasized their macroeconomic policy role almost to the exclusion of other concerns. The crisis experience has led to profound changes in the way we view central banking. Central banking in the...

We study liquidity transfers between banks through the interbank borrowing and asset sale markets when(i)surplus banks providing liquidity have market power, ii)there are frictions in the lending market due to moral hazard, and(iii)assets are bank-specific. We show that when the outside options...

This paper develops a micro-founded general equilibrium model of the financial system composed of ultimate borrowers, ultimate lenders and financial intermediaries. The model is used to investigate the impact ofuncertainty about the likelihood of governmental bailouts on leverage,interest rates,...

This paper develops a dynamic stochastic general equilibrium monetary portfolio choice model that accomplishes two objectives. First, it provides a theory of currency risk premia based on a weak and plausible form of fiscal non-neutrality. Domestic and foreign bonds become imperfect substitutes,...

Standard theory shows that sterilized foreign exchange interventions do not affect equilibrium prices and quantities, and that domestic and foreign currency denominated bonds are perfect substitutes. This paper shows that when fiscal policy is not sufficiently flexible in response to spending...

Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically need strong assumptions that make them ill-suited for studying monetary policy. We propose a framework based on...

We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. We use this model to explore the connection between the exchange rate regime and financial distress. We show that fixed exchange rates exacerbate financial crises by tying the hands of...

Inflation targeting is gaining popularity as a framework for conducting monetary policy. At the same time many countries employ some sort of foreign exchange intervention policyassuming that these two policies can coexist. This paper attempts to show that bothpolicies are not sustainable. The...

Identi fication problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several macro- finance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identifi cation of the rule's parameters...