Offering an analytical perspective on the design and reform of the international financial architecture, this book stresses the important role played by creditor co-ordination problems in the origin and management of crises by relating the insights of the new literature on global games to...

Trust lies at the crux of most economic transactions, with credit markets being a notable example. Drawing on insights from the literature on coordination games and network growth, we develop a simple model to clarify how trust breaks down in financial systems. We show how the arrival of bad...

This paper describes a prototype quantitative framework for gauging systemic risk which explicitly characterizes banks’ balance sheets and allows for macro credit risk, interest income risk, market risk, network interactions, and asset-side feedback effects. In presenting our results, we focus...

The recent financial crisis has brought the issue of banking system ‘stress tests’ to the fore. This paper describes recent progress in the area of systemic risk modelling and measurement and discusses how the results of such analyses are helping shape the practical framework for...

We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. We...

This note presents a simple model that nests the “excess liquidity” and “savings glut” hypotheses of the debate on the recent asset price boom. It clarifies the notion of investors’ ‘search for yield’ and shows how financial frictions influence asset price dynamics.

This paper explores the determinants of sovereign bond yields during the classical gold standard period (1872-1913). Using the Pooled Mean Group methodology, we find that the main benefit of the gold standard was as a short-sighted device that enhanced a country's reputation in international...