The events from the 2007-2009 financial crisis have raised concerns that the failure of large financial institutions can lead to destabilizing fire sales of assets. The risk of fire sales is related to exemptions from bankruptcy's automatic stay provision enjoyed by a number of financial...

Peck and Shell (2003) show that it is possible to get a bank run in a Diamond-Dybvig environment. The mechanism they use, however, is not an optimal one. When an optimal mechanism is used, the bank run equilibrium disappears.

The 2010 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Chicago this summer, for the second year. The following document summarizes and ties together the papers presented.

We motivate and provide an overview to New Monetarist Economics. We then briefly describe the individual contributions to the Macroeconomics Dynamics special issues on money, credit and liquidity.

This paper describes segregated balance accounts (SBAs), a concept for a new type of account that could provide increased competition for deposits, reduce system-wide balance sheet costs, and improve the transmission of monetary policy by facilitating greater pass-through of interest on excess...

A few years ago we sat down with Neil Wallace and had two lengthy, free-ranging conversations about his career and, generally speaking, his views on economics. What follows is a distillation of these conversations.

Hedge fund managers differ in ability and investors want to distinguish good ones from bad. Via the design of their investment strategies, better fund managers want to ease this inference problem while worse fund managers want to complicate it. We impose only the minimal restrictions on the...

Entrepreneurs need cash to finance their real investments. Since cash is costly to hold, entrepreneurs will underinvest. If entrepreneurs can access financial markets prior to learning about an investment opportunity, they can sell some of their less liquid assets for cash and, as a result,...

The work of Diamond and Dybvig, 1983 is commonly understood as a theory of bank runs driven by self-fulfilling prophecies. Their contribution may alternatively be interpreted as a theory for preventing these bank runs. Absent aggregate risk over liquidity demand, they show that a simple scheme...

Banking models in the tradition of Diamond and Dybvig (1983) rely on sequential service to explain belief-driven runs. But the run-like phenomena witnessed during the financial crisis of 2007-08 occurred in the wholesale shadow banking sector where sequential service is largely absent,...