The novel coronavirus SARS-CoV-2 imposes the most unexpected external economic shock to modern humankind, triggering abrupt consumption and behavior pattern shifts around the world with widespread socio-economic impacts. In order to alleviate unexpected negative fallouts from the crisis,...

Despite a large and growing theoretical literature on flights to safety, there does not appear to exist an empirical characterization of flight-to-safety (FTS) episodes. Using only data on bond and stock returns, we identify and characterize flight to safety episodes for 23 countries. On...

Global current account imbalances have been at the forefront of policy debates over the past few years. Many observers have recently singled them out as a key factor contributing to the global financial crisis. Current account surpluses in several emerging market economies are said to have...

This summary policy analysis provides a simple diagnosis of the sub-prime lending debacle and consequent systemic financial crisis: The Fed fueled an asset bubble, housing policy steered it to housing, and the extreme leverage required to fund political housing policy magnified losses instead of...

Aligning investments to the climate and sustainability targets requires the introduction of stable climate-aligned policies. In this regard, a global Carbon Tax (CT) and a revision of the microprudential banking framework via a Green Supporting Factor (GSF) have been advocated. However, our...

Using a large contract-level, high frequency database of bank loan commitments from June 2007 to May 2009, we fi nd that fi rms' takedown behavior regarding credit lines is very di erent depending on the fi rms' creditworthiness. Usage patterns of rms with poor credit quality are more closely...

We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can...

This essay argues that the Achilles heel of the international monetary and financial system is that it amplifies the "excess financial elasticity" of domestic policy regimes, ie it exacerbates their inability to prevent the build-up of financial imbalances, or outsize financial cycles, that lead...

A major factor behind this crisis is financialization of the system, with a growing disconnect between the monetary and the real sector. Some proponents of the Islamic finance claim such financial crisis would have been avoided, if asset-backed Islamic finance were adopted. However, while...

Who was listening before the Financial Crisis of 2008 to Arrow's warnings and the teachings of Coase? Due to transaction costs, incomplete foresight and bounded rationality not all risks that would be desirable to shift can be shifted through the market. Financial firms and other institutions...