A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to partially offset wealth shocks by varying hours of work can significantly alter the household's attitudes toward risk, as shown in Swanson...

A fixed-rate deposit insurance system provides a moral hazard for excessive risk taking and is not viable absent regulation. Although the deposit insurance system appears to have worked remarkably well over most of its 50-year history, major problems began to appear in the early 1980s. This...

There are two seemingly inconsistent strands of the finance literature regarding the effects of bank capital regulation. On the one hand, the value maximization literature implies that more stringent capital regulation will reduce the probability of bank failure and the risk exposure of the...

We use share price data to calculate bank asset volatilities, market capital-asset ratios, and the public-sector depositor protection liability for Australia. The results show that the average capital ratio for the Australian banking sector has risen over the past decade, while the riskiness of...

This paper uses household consumption data to investigate whether uninsurable idiosyncratic risk accounts for the equity premium. The analysis complements and extends prior empirical work by relaxing maintained assumptions about idiosyncratic income shocks. Following Mankiw (1986), the paper...

One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors’ risk aversion. The paper first presents a simple model examining how heterogeneous changes in investors’ risk aversion affects portfolio...