This paper proposes and tests a theory of credit-driven asset bubbles which are neutral in their real effects. When a … output comes from an unusual regime. -- Bubbles ; fiscal theory of the price level ; collateral constraints ; neutrality … asset bubbles can form which exactly offset a bubble in household liabilities. Surprisingly, evidence from a VAR using long …

reduced-form models can explain sovereign spreads, while, consistent with flights to liquidity, illiquidity risk is relevant …Illiquidity and default risk are determinants of bond spreads that models suggest vary across market states. The … particularly important during periods of market stress. These flights to liquidity are substantially more prominent at the shorter …

procedures to test for explosive bubbles under the presence of time-varying volatility (Harvey, Leybourne, Sollis and Taylor …

We devise a simple model of liquidity demand and supply to deepen the understanding of dealers’ liquidity provision in …' intermediation capacity is constrained the cost of liquidity provision increases disproportionately relative to dealer …-intermediated volume. Thus, the otherwise strong and positive relation between liquidity costs and trading volume effectively shrinks to …