Historical evidence reveals no monocausal explanation for banking crises, including one which would emphasize the maintenance of a currency peg. To some extent this follows from the standard textbook wisdom: whether fixed or flexible exchange rates are preferable depends on the source of...

After rapidly cutting short-term interest rates to their effective lower bounds during the financial crisis of 2008–09, central banks in the USA and UK turned to quantitative easing (QE) in order to sustain aggregate demand and avoid a Japanese style deflationary spiral. The European...

In the event of third generation crisis, international lending of last resort should be used if and only if the ILLOR is informed on the subject of financial and banking domestic markets. Therefore, if will act at a macroeconomic level, as a usual ILLOR, but also at a microeconomic level, since...

The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor’s point of view...

Central bank policy suffers from time-inconsistency when facing a banking crisis: A bailout is optimal ex post but ex ante it should be limited to control moral hazard. Dollarization provides a credible commitment not to help at the cost of not helping even when it would be ex ante optimal to do...

Following Diamond and Dybvig (1983), bank runs in the literature take the form of withdrawals of demand deposits payable in real goods, which deplete a fixed reserve of goods in the banking system. This paper examines modern bank runs, in which withdrawals typically take the form of wire...