We theoretically illustrate how macroprudential policy spillovers through international capital flows can lead to uncoordinated policy choices that are tighter than would occur with coordination. We consider a symmetric two-country macro model in which countries have limited ability to issue...

When financial intermediaries’ key characteristic is provision of liquidity through their liabilities, with financial frictions the financial sector in the aggregate is likely to over-accumulate equity, thus decreasing liquidity provision and household welfare. Aggregate household welfare is...

Digital currencies provide a potential form of liquidity competing with bank deposits. We introduce stable digital currency into a macro model with a financial sector in which financial frictions generate endogenous systemic risk and instability. In the model, digital currency is fully...