A sizeable proportion of enterprises, especially SMEs, assisted by the government, will fail to repay. Should a screening mechanism then be applied to deter those most likely to default from seeking such financial assistance? The answer depends on the relative weights attached to the competitive...

We define a non-tâtonnement dynamics in continuous-time for pure exchange economies with outside and inside fiat money. Traders are myopic, face a cash-in-advance constraint, and play dominant strategies in a short-run monetary strategic market game involving the limit-price mechanism. The...

This paper contains a General Equilibrium model of an economy with Incomplete Markets (GEI) with money and default. The model is a simplified version of the real world consisting of a non-bank private sector, banks, a Central Bank, a government and a regulator. The model is used to analyse...

We define a non-tâtonnement dynamics in continuous-time for pure-exchange economies with outside and inside fiat money. Traders are myopic, face a cash-in-advance constraint and play dominant strategies in a short-run monetary strategic market game involving the limit-price mechanism. The...

This paper analyzes the different channels of shock transmission in an economy affected by financial frictions. We distinguish between the liquidity and default effects on asset prices. Furthermore, we develop a framework in which we can assess financial stability policy under financial...

Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms...

This paper provides a quantitative metric for financial stability of Korean commercial banking system based on the Tsomocos (J Math Econ 39(5–6):619–655, <CitationRef CitationID="CR32">2003</CitationRef>) model, for which we use market data as proxies for probabilities of default and equity valuation of the banking sector. We estimate...</citationref>

What is the main limitation of much modern macro-economic theory, among the failings pointed out by William R. White at the 2010 Mayekawa Lecture? We argue that the main deficiency is a failure to incorporate the possibility of default, including that of banks, into the core of the analysis....