We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values instead of the classical approach by Merton with geometric Brownian motions. We develop an analytical expression for the default probability. Our simulation results indicate that...

The aim of this paper is to investigate the impact of banks’ sovereign debt exposures on the financial development of Turkey. Results of the bounds test reveal a long-run and negative equilibrium relationship between banks’ domestic claims on sovereign and financial development, while...

Drawing on a unique farm level panel data set with 37,409 observations for period 2004–2005 and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. We find that farms are asymmetrically...

This paper focuses on the roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the EU governance structure in conjunction with radical changes in the regulation and supervision of financial markets. The EMU was sub-optimal from its debut and...

The paper reviews the commercial banking sector’s development during the booming years before the current global crisis in Southeast Europe. Based on the analysis of a comprehensive dataset, a common, simplified economic model could be outlined for this period, where GDP growth has been...

We analyze an overlapping generations economy where agents interact to share liquidity risk. We show that a pure exchange economy has excessive trade in equilibrium, and that intergenerational financial intermediaries reduce the number of interactions by catering to clienteles with uncorrelated...

Abstract: In this study, we empirically investigate and evaluate various approaches to structurally assess credit risk using a panel of European banking groups. We consider not only the standard approaches in the literature, but also include models that allow the asset volatility to be...

This paper empirically investigates the relationship between individual trust in financial institutions and individual access to these institutions. Based on a large-scale survey of savings patterns of Indians, we find that individuals reporting that they do not have access to certain financial...

An explanation of the Great Depression based on mortgage debt via the banking channel has been downplayed due to the conservatism of mortgage contracts at the time. Indeed, maturities were particularly short compared to today's average terms (around three years), and loan-to-value ratios often...