We show that asset opacity can improve the efficiency of investment in the economy. We consider a model where underinvestment arises from speculative cash-hoardings aiming to benefit from fire-sale prices. Whereas opacity provides no benefit to asset originators in the case of isolated...

The Lucas Critique provides a cautionary background for the implementation of new policies. Rational agents tend to anticipate the consequences of new policies and may adopt their behavior in ways that affect the effectiveness of policies. New financial regulation, which is moving from a...

The existence of public guarantees that are extended in the case of system-wide stress only (“too-many-to-fail”) may distort the relative pricing of risks in the financial system. Studying the market for syndicated loans, we find that banks require lower compensation for aggregate risk than...