This paper presents a general equilibrium model with endogenous collateral constraints to study the relationship between financial development and business cycle fluctuations in a cross-section of economies with different sizes of their financial sector. The financial sector can amplify or...

We model the behavior of dealers in Over-the-Counter (OTC) derivatives markets where a small number of dealers trade with a continuum of heterogeneous clients (hedgers). Imperfect competition and (endogenous) default induce a familiar trade-off between competition and risk. Increasing the number...

This paper addresses the critique of the aggregational problem attached to the financial instability hypothesis of Hyman Minsky. The core of this critique is based on the Kaleckian analytical framework and, in very broad terms, states that the expenditure of firms for investment is at the same...

We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to...