We show that the interplay between endogenous limited participation and credit lines creates asset price bubbles in a simple exchange economy with three types of agents: regular stockholders, arbitrageurs and liquidity providers. Regular stockholders are worse off in the economy with credit...

We analyze the feedback mechanisms between economic downturns and financial stress for several euro area countries. Our study employs newly constructed financial condition indices that incorporate banking variables extensively. We apply a non-linear Vector Smooth Transition Autoregressive...

We argue that the present crisis and stalling economy continuing since 2007 have clear origins, namely in the delusionary belief in the merits of policies based on a “perpetual money machine” type of thinking. Indeed, we document strong evidence that, since the early 1980s, consumption has...

While the negative effect of uncertainty shocks on economic activity is well documented in manyempirical studies, little is known about the extent to which the effect differs across various kinds ofuncertainty, especially in the emerging market economy context. Using the newly available economic...

Europe’s financial landscape has substantial institutional variety. This reflects different societal responses to (or preferences with regard to) trade-offs. For monetary policy, it implies a challenging environment, particularly in times of financial crises. Using a non-linear VAR-model we...

We study the effects of central bank communication about financial stability on individuals’ expectations and risk-taking. Using a randomized information experiment, we show that communication causally affects individuals’ beliefs and investment behavior, consistent with an expectations...