A baseline integration of commercial banks into the disequilibrium framework with behavioral traders of Charpe et al. (2011, 2012) is presented. At the core of the analysis is the impact the banking sector exerts on the interaction of real and financial markets. Potentially destabilizing...

While Gorton and Rouwenhorst (2005) suggest using business cycle in tactical asset allocation with commodity futures, Jensen et al (2002) suggest using monetary policy in guiding the timing of investment. We investigate whether it is useful to watch both.We find that clever timing in asset...

We use a DSGE model that generates endogenous movements in risk premia to examine the positive and normative implications of alternative monetary policy rules. As emphasized by the micro-finance literature, variation in risk arises because households face fixed costs of transferring cash across...

We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their...

We study what makes government bonds a safe asset. Building on a sample of monthly changes in government bond yields in 40 advanced and emerging countries, we analyse the sensitivity of yields to country specific fundamentals interacted with changes in global risk (VIX). We find that inertia...