The concept of risk-based capital requirements enjoys widespread support. Effective implementation, however, requires that risk be measured accurately both across borrowers and across time. Under the New Capital Accord, the cornerstone of this risk measurement process is the rating of the...

We consider performance measurement and evaluation for managed funds. Similarities and differences−both in econometric practice and in interpretation of outcomes of empirical tests−between performance measurement and conventional asset pricing models are analyzed. We also discuss how...

A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example, investors who decide whether to rent or buy a house by simply comparing monthly rent and mortgage payments do not take into account that inflation lowers future real mortgage costs. We...

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A large body of theoretical literature suggests that capital structure plays an important as a managerial incentive mechanism. Cross-sectional empirical studies have identified a positive effect of leverage on expected performance (measured by Q) for firms with low growth opportunities. This is...

Most of those who take macro and monetary policy decisions are agents.  The worst penalty which can be applied to these agents is to sack them.  Agents thus have loss functions which are bounded above.  We work with a bell loss function which has this property.  With additive uncertainty the...

Using a new database covering some 91 supervisory agencies, this paper examines how important various skilled experts are in the regulatory process and the relative usage of different kinds of such experts. We seek to explore what kind of perspective supervisors in different institutional...

This paper develops a model of the lender of last resort (LOLR). In a simple one-period setting, the Central Bank (CB) should only rescue banks which are above a threshold size, thus providing an analytical basis for ¶too big to fail¶. In a dynamic setting, the CBs optimal LOLR policy is time...

We investigate a class of estimators for Linear Regression models where the dependent variable is subject to bid-ask censoring.  Our estimation method is based on a definition of error that is zero when the predictor lies between the actual bid price and ask price, and linear outside this...