This paper presents a general equilibrium model with technological uncertainty, financial markets and imperfect information. The future consists of uncertain environments that are more or less clearly distinguishable (measurable). This limits the possibilities of specialization and...

We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and...

This paper addresses the discussion between economic power and the power of politics with particular focus on financial markets. After general reflections about the economic basis of power, the paper discusses in a general equilibrium framework how financial innovations can lead to risk creation...

This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these...

This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance...

Markets for risky loans clear on two dimensions - an interest rate (or equivalently a spread above the riskless rate) and a specification of the amount of collateral per dollar of lending. The latter is summarized by the margin or "haircut" associated with the loan. Some key models of endogenous...

This study examines the development of the US economy since the prolonged recession in the early 1980s. This period was characterised by a serious weakening in the bargaining position of waged workers and a major expansion of the financial sector. Most of the economic gains accrued to top...

We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that...

Financialisation in Iceland should be seen as an evolving process driven by a mixture of global and domestic forces. Responding to fundamental issues underlying macroeconomic imbalances, the authorities introduced policies that proved particularly supportive of financial expansion at a time when...

In the United States and the European Union (EU), political incentives to oppose cross-border banking have been strong in spite of the measurable benefits to the real economy from breaking down geographic barriers. Even a federal-level supervisor and safety net are not by themselves sufficient...