A common perception about the neoclassical growth model is that an economy devoid of capital cannot evolve to strictly positive levels of output if capital is essential. We challenge this view by positing a broad class of production functions, encompassing the neoclassical production function,...

This paper empirically investigates the effect of government bail-out policies on banks outside the safety net. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the...

We present a banking model with imperfect competition in which borrowers' access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is...

We develop a model of rational bubbles, based on the assumptions of an unknown potential market size and delegation of investment decisions. In a bubble, the price of an asset rises above its steady-state value, which must be justified by rational expectations about possible future price...

The field of New Economic Geography (NEG) aims at explaining agglomeration based on increasing returns, monopolistic competition and international factor mobility. Deviating from existing approaches, this paper constructs a theoretical model based on capital market frictions. Firms compete...

This paper analyzes how a bank shareholder optimally designs the compensation scheme of a bank manager if there are agency problems between the shareholder and the manager, and how this design changes in reaction to anticipated bail-outs. If there is a problem of excessive risk-taking, bail-out...

Money markets have two functions, the allocation of liquidity and the processing of information. We develop a model that allows us to evaluate the efficiency of different money market derivatives regarding these two objectives. We assume that due to its size, a large bank receives a more precise...

A common perception about the neoclassical growth model is that an economy devoid of capital cannot evolve to strictly positive levels of output if capital is essential. We challenge this view by positing a broad class of production functions, encompassing the neoclassical production function,...

Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability...