Most models of optimal income tax enforcement assume that income is either random or solely remunerates labor, neglecting that auditing strategies may depend on observable inputs. This paper outlines a model to optimally monitor self-employed entrepreneurs when, in addition to reported profits,...

Most models of optimal income tax enforcement assume that income is either random or solely remunerates labor, neglecting that auditing strategies may depend on observable inputs. This paper outlines a model to optimally monitor self-employed entrepreneurs when, in addition to reported profits,...

We develop a new framework for studying the implementation of monetary policy through the banking sector. Banks are subject to a maturity mismatch problem leading to precautionary holdings of reserves. Through various instruments, monetary policy alters tradeos banks face between lending,...

We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in...

We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in...

Financial crises seem particularly severe and lengthy when banks fail to recapitalize after large losses. I explain this failure and the consequent depth of financial crises through a model in which banks provide intermediation in markets with informational asymmetries. Large equity losses...

We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in...

Financial crises appear to persist if banks fail to be recapitalized quickly after large losses. I explain this impediment through a model where banks provide intermediation services in asset markets with informational asymmetries. Intermediation is risky because banks take positions over assets...

powerful and persistent source of aggregate fluctuations.

We show that the organization of production among firms in an economy has important implications for the impact of financial frictions. We set up a model in which firms use output of other firms as inputs for their own production. We allow for arbitrary network structures such that aggregate...