Most analyses of banking crises assume that banks use real contracts. However, in practice, contracts are nominal and this is what is assumed here. We consider a standard banking model with aggregate return risk, aggregate liquidity risk and idiosyncratic liquidity shocks. We show that, with...

The very low interest rates and inflation rates of recent years has generated renewed interest in alternative policies that would not leave central banks trapped by the zero lower bound on nominal interest rates. Amongst this debate, surprisingly little attention has been paid to the possibility...