Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the core of the detrimental feedback loop is agents'...

A "sunspot" is a variable that has no direct impact on the economy's fundamental condition, such as preferences, endowments or technologies, but may nonetheless affect economic outcomes through the expectations channel as a coordination device. This paper investigates how people react to...

We employ a model of leverage-induced explosive behavior in financial markets to develop a measure of financial market instability. Specifically, we derive a quantitative condition for how large levered investors can become relative to the whole market before the demand curve for securities...

We build a general equilibrium model with financial frictions that impede the effectiveness of monetary policy in stimulating output. Agents with heterogeneous productivity can increase investment by levering up, but this increases interim liquidity risk. In equilibrium, the more productive...

Chronicling the politics that led to the creation of the twelve Reserve Banks and the pursuant legal and political consequences, this paper argues that the Federal Reserve’s quasi-private Reserve Banks are, at best, opaque and unaccountable, and, at worst, unconstitutional. Following the Panic...

In the context of wide regional disparities emerging in the process of development, the banks have an additional responsibility in India. That responsibility is to enter the under developed regions and to mobilize and channelize resources into local economic activities such that local...

The events following Lehman's failure in 2008 and the current turmoil emanating from Europe highlight the structural vulnerabilities of short-term credit markets and the role of central banks as back-stop liquidity providers to financial markets. The Federal Reserve's response to financial...

Since his appointment in the summer of 2009, the new Governor of the Central Bank of Nigeria, Lamido Sanusi, has introduced a spate of reforms in response to the global financial crisis and the mismanagement of certain Nigerian banks. This article briefly reviews the history of Nigerian banking...