The authors show that the regulation of bank lending practices is necessary for the optimal provision of private liquidity. In an environment in which bankers cannot commit to repay their creditors, the authors show that neither an unregulated banking system nor narrow banking can provide the...

Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). We examine whether insurance, in the form of loan...

The authors estimate the cost savings to the U.S. payment system resulting from implementing Check 21. This legislation initially permitted a paper substitute digital image of a check, and later an electronic digital image of a check, to be processed and presented for payment on a same-day...

An important source of inefficiency in long-term debt contracts is the debt dilution problem, wherein a borrower ignores the adverse impact of new borrowing on the market value of outstanding debt and, therefore, borrows too much and defaults too frequently. A commonly proposed remedy to the...

Self regulation encouraged by market discipline constitutes a key component of Basel II’s third pillar. But high-risk investment strategies may maximize the expected value of some banks. In these cases, does market discipline encourage risk-taking that undermines bank stability in economic...

In this paper, the authors advance the theory and computation of Eaton-Gersovitz style models of sovereign debt by incorporating long-term debt and proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed and...

What are the positive and normative implications of eliminating bankruptcy protection for indebted individuals? Without bankruptcy protection, creditors can collect on defaulted debt to the extent permitted by wage garnishment laws. The elimination lowers the default premium on unsecured debt...

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S. dollar nominal exchange rate. Despite state-of-the-art methodologies, the authors find little systematic relation between oil prices and the exchange rate at the monthly and...

This paper sets forth a discussion framework for the information requirements of systemic financial regulation. It specifically describes a potential large macro-micro database for the U.S. based on an extended version of the Flow of Funds. I argue that such a database would have been of...

This paper argues that there is a normative case for delaying policy reform. Policy design in dynamic economies typically faces a trade-off between the policy effects in the short and long term, and possibly across future states of nature. When the economy is in an atypical state or available...