This paper constructs a macro-finance model with two types of borrowers: entrepreneurs who engage in productive activities and gamblers who play in lotteries. It links a central bank's interest rate policy to expected cash flows of both types of borrowers. Via this link we study how the...

On September 3-4, 2009 SUERF and Utrecht University School of Economicsorganized the Colloquium "The Quest for Stability" in Utrecht, the Netherlands. The papers included in this SUERF Study are based on contributions to the Colloquium.

Before the onset of the ongoing credit crisis I concluded that the available evidence supported the notion that financial markets were (significantly) underpricing risk . It will be argued in this paper that inherent (or structural) difficulties in the pricing of all sorts of risks is an...