Creditors of a distressed borrower face a coordination problem. Even if the fundamentals are sound, fear of premature foreclosure by others may lead to pre-emptive actions, undermining the project. Recognition of this problem lies behind corporate bankruptcy provisions across the world, and it...

Open-end mutual funds face redemptions by investors, but the sale of the underlying assets depends on the portfolio decision of asset managers. If asset managers use their cash holding as a buffer to meet redemptions, they can mitigate fire sales of the underlying asset. If they hoard cash in...

In a financial market where traders are risk averse and short lived, and prices are noisy, asset prices today depend on the average expectation today of tomorrow's price. Thus (iterating this relationship) the date 1 price equals the date 1 average expectation of the date 2 average expectation...

Creditors of a distressed borrower face a coordination problem. Even if the fundamentals are sound, fear of premature foreclosure by others may lead to pre-emptive action, undermining the project. Recognition of this problem lies behind corporate bankruptcy provisions across the world, and it...

We explore a global game model of the impact of monetary policy shocks. Risk-neutral asset managers interact with risk-averse households in a market with a risky bond and a floating rate money market fund. Asset managers are averse to coming last in the ranking of short-term performance. This...

We study coordination games under general type spaces. We characterize rationalizable actions in terms of the properties of the belief hierarchies and show that there is a unique rationalizable action played whenever there is approximate common certainty of rank beliefs, defi ned as the...

We describe and contrast three different measures of an institution's credit risk. "Insolvency risk" is the conditional probability of default due to deterioration of asset quality if there is no run by short term creditors. "Total credit risk" is the unconditional probability of default, either...

FocusThe paper examines the relationship between monetary policy and market prices through the lens of central bank communication. Central bankers use forward guidance to steer market expectations of future monetary policy moves. At the same time, they rely on market prices to gauge the likely...

Creditors of a distressed borrower face a coordination problem. Even if the fundamentals are sound, fear of premature foreclosure by others may lead to pre-emptive actions, undermining the project. Recognition of this problem lies behind corporate bankruptcy provisions across the world, and it...