This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the reluctance of the banking sector to "lend" to the real economy induced by an exogenous change in financial intermediaries' preference for "high"...

In the aftermath of the 2008 Global Financial Crisis (GFC), scholars and policymakers turned their attention to the role of uncertainty in amplifying the effects of economic or financial shocks on economic activity. A growing literature has focused on addressing this question. Most works find...

I present a dynamic general equilibrium model in which financial interconnectedness endogenously changes over the business cycle and shapes systemic risk. To share individual risks, banks become interconnected through holding overlapping asset portfolios. Diversification reduces individual...

The Great Recession has been characterised by the two stylized facts: the buildup of leverage in the household sector in the period preceding the recession and a protracted economic recovery that followed. We attempt to explain these two facts as an information friction, whereby agents are...

We examine the transmission of global macro-financial uncertainty to economic activity depending on the current state of the banking sector. Previous literature suggests that credit supply and uncertainty shocks are important drivers of economic activity, but the distinction between the two is...

We propose a new measure of financial intermediary constraints based on how the intermediaries manage their tail risk exposures. Using a unique dataset for the trading activities in the market of deep out-of-the-money S&P 500 put options, we identify periods when the variations in the net amount...

We develop a dynamic computational network model of the banking system where fire sales provide the amplification mechanism of financial shocks. Each period a finite number of banks offers a large, but finite, number of loans to households. Banks with excess liquidity also offer loans to other...

Our results uncover a so far undocumented ability of the interbank market to distinguish between banks of different quality in times of aggregate distress. We show empirical evidence that during the 2007 financial crisis the inability of some banks to roll over their interbank debt was not due...

This paper examines whether the risk of future collateral fire sales affects lending decisions. We study US mortgage applications and exploit exogenous variation in foreclosure frictions for identification. We find that lenders are less likely to approve mortgages when anticipated losses due to...

This paper takes the view that a major contributing factor to the financial crisis of 2008 was a failure to correctly assess and price the risk of default. In order to analyse default risk in the macroeconomy, a simple general equilibrium model with banks and financial intermediation is...