Related papers: Monetary Policy, Uncertainty, and Credit Supply
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices…
This paper examines deposits of individuals ("retail") and large companies ("wholesale") in the U.S. banking industry, and how these deposit types are impacted by macroeconomic factors, such as quantitative easing (QE). Actual data for…
We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 -…
In this paper, we analyze the effect of a policy recommendation on the performance of an artificial interbank market. Financial institutions stipulate lending agreements following a public recommendation and their individual information.…
Common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis. We develop a network approach to the amplification of financial contagion due to the combination of overlapping…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Using a semi-structural approach, the paper identifies how heterogeneity and financial frictions affect the transmission of aggregate shocks. Approximating a heterogeneous agent model around the representative agent allocation can…
Realistic credit risk assessment, the estimation of losses from counterparty's failure, is central for the financial stability. Credit risk models focus on the financial conditions of borrowers and only marginally consider other risks from…
We extend in a minimal way the stylized model introduced in in "Tipping Points in Macroeconomic Agent Based Models" [JEDC 50, 29-61 (2015)], with the aim of investigating the role and efficacy of monetary policy of a `Central Bank' that…
This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…
This paper analyzes nonlinearities in the international transmission of financial shocks originating in the US. To do so, we develop a flexible nonlinear multi-country model. Our framework is capable of producing asymmetries in the…
The rapid growth of sustainable investing, now exceeding 35 trillion USD globally, has transformed financial markets, yet the implications for monetary policy transmission remain underexplored. While existing literature documents…
This paper examines a heterogeneous beliefs model in which there is a process that is only partially observed by the agents. The economy contains a risky asset producing dividends continuously in time. The dividends are observed by the…
This chapter reviews key contributions of complexity science to the study of systemic risk in financial systems. The focus is on network models of financial contagion, where I explore various mechanisms of shock propagation, such as…
We study how a central bank should dynamically set short-term nominal interest rates to stabilize inflation and unemployment when macroeconomic relationships are uncertain and time-varying. We model monetary policy as a sequential…
Propagation of balance-sheet or cash-flow insolvency across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in…
We study a large economy in which firms cannot compute exact solutions to the non-linear equations that characterize the equilibrium price at which they can sell future output. Instead, firms use polynomial expansions to approximate prices.…
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…
I study the role of industries' position in supply chains in shaping the transmission of final demand shocks. First, I use a novel shift-share design leveraging destination-specific final demand shocks and a new measure of destination…
Consumer credit services offered by e-commerce platforms provide customers with convenient loan access during shopping and have the potential to stimulate sales. To understand the causal impact of credit lines on spending, previous studies…