This paper develops a model with multiple steady states (low tax and unemployment rate versus high tax and unemployment rate) in which equilibrium selection is not conditioned on a sunspot variable. Instead, large enough shocks initiate unavoidable transitions from one regime to the other. The...

The paper analyses the relationship between deposit insurance, debt-holder monitoring, and risk taking. In a stylised banking model we show that deposit insurance may reduce moral hazard, if deposit insurance credibly leaves out non-deposit creditors. Testing the model using EU bank level data...

In this paper a simultaneous-equations model of firm closing and wage determination is specified in order to analyse how wages adjust to unfavorable product demand shocks that raise the risk of displacement through firm closing, and to what extent an exogenous wage change affects the exit...