The increasing complexity of large financial firms has led to consideration of alternative regulatory structures. This has intensified recently because of the worldwide turmoil in financial markets. One important consideration has been to increase reliance on market discipline--most notably,...

This paper examines how the presence of uncertainty alters allocations and prices when the nominal interest rate is constrained by the zero lower bound. I conduct the analysis using a standard New Keynesian model in which the nominal interest rate is determined according to a truncated Taylor...