This paper aims to stress the importance of market liquidity for the stability of the financial system, emphasizing the pivotal role played by liquidity risk in the development of the current financial crisis, pointing out the flaws of regulation and supervision and stressing the need for their...

Financial instability and liquidity management by banks is often the most debated topic in the area of monetary economics. This study examines an emerging economy's banking system and contributes to the evolving body of literature on the topic of banks' borrowing behaviour during financial...

We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random...

This paper presents a general equilibrium model with technological uncertainty, financial markets and imperfect information. The future consists of uncertain environments that are more or less clearly distinguishable (measurable). This limits the possibilities of specialization and...

We experimentally investigate how price expectations are formed in a large asset market where subjects' only task is to forecast the future price of a risky asset. The realized prices depend on these expectations. We observe small (6 participants) and large markets (about 100 participants). In...

We show how the timing of financial innovation might have contributed to the mortgage boom and then to the bust of 2007-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with collateral. We show why tranching and leverage tend...

We show that cross-border financial flows arise when countries differ in their abilities to use assets as collateral. Financial integration is a way of sharing scarce collateral. The ability of one country to leverage and tranche assets provides attractive financial contracts to investors in the...

This paper offers a model for financial market crashes without the two basic hypotheses - the assets are perfectly divisible, and their trading takes place continuously in time. We show that financial market crashes stem endogenously from an inherent characteristic of financial markets rather...

I present a model of fire sales incorporating multiple investors with overlapping asset holdings and heterogeneous leverage constraints. Negative price shocks force asset sales which in turn depress prices, triggering additional forced selling and price declines in a self-reinforcing negative...

The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic effects on international asset prices and international capital flows. These are difficult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a...