This paper models the strategic interaction between a rating agency, a bank and a bank regulator who lacks information about bank asset risk. The regulator can either (1) make bank capital requirements contingent on credit ratings; or (2) set rating-independent capital requirements. Truthful...

Central banks create money to lend during credit crunches, which might lead to inflation. We examine whether the two key functions of central banks—price stability and last-resort lending—conflict. We develop a nominal model of bank runs à la Diamond and Dybvig (1983) in which individuals...

Central banks create money to lend during credit crunches, which might lead to inflation. We examine whether the two key functions of central banks - price stability and last-resort lending - conflict. We develop a nominal model of bank runs à la Diamond and Dybvig (1983) in which individuals...