Related papers: Monetary Policy, Uncertainty, and Credit Supply
With present and future observations becoming of higher and higher quality, it is timely and necessary to investigate the most significant theoretical uncertainties in the predictions of inflation. We show that our ignorance of the entire…
This paper presents a model that studies the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy,…
It had been believed in the conventional practice that the risk of a bank going bankrupt is lessened in a straightforward manner by transferring the risk of loan defaults. But the failure of American International Group in 2008 posed a more…
We investigate the macroeconomic consequences of narrow banking in the context of stock-flow consistent models. We begin with an extension of the Goodwin-Keen model incorporating time deposits, government bills, cash, and central bank…
Banks are important for the development of economies in any financial ecosystem through consumer and business loans. Lending, however, presents risks; thus, banks have to determine the applicant's financial position to reduce the…
Although neural networks are powerful function approximators, the underlying modelling assumptions ultimately define the likelihood and thus the hypothesis class they are parameterizing. In classification, these assumptions are minimal as…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of…
Predicting changes in consumer attention for cultural products, such as books, movies, and songs, is notoriously difficult. Past research suggests intrinsic limits for predicting consumer attention towards individual products. However,…
Growth-at-Risk has recently become a key measure of macroeconomic tail-risk, which has seen it be researched extensively. Surprisingly, the same cannot be said for Inflation-at-Risk where both tails, deflation and high inflation, are of key…
Social inflation, which is the rise in liability claim costs beyond general economic inflation, has become a major concern for insurers and reinsurers, yet it is difficult to quantify because litigation outcomes are heavy-tailed and the mix…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
We show that, in a market economy, the aggregate production level depends not only on the aggregate variables but also on the distribution of individual characteristics (e.g., productivity, credit limit, ...). We prove that, due to…
Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…
This paper studies the economic role of persistent dispersion in allocations across agents. We develop a tractable model in which firms allocate resources under imperfect information and behavioral updating, generating sustained…
We model the default contagion process in a large heterogeneous financial network under the interventions of a regulator (a central bank) with only partial information which is a more realistic setting than most current literature. We…
We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…
Financial institutions face a trade-off between predictive accuracy and interpretability when deploying machine learning models for credit risk. Monotonicity constraints align model behavior with domain knowledge, but their performance cost…
This paper investigates the transmission of funding liquidity shocks, credit risk shocks and unconventional monetary policy within the Euro area. To this aim, we estimate a financial GVAR model for Germany, France, Italy and Spain on…
This paper studies an interacting particle system of interest in econophysics inspired from a model introduced in the physics literature. The original model consists of the customers of a single bank characterized by their capital, and the…