We show that higher interconnectivity among financial intermediaries induces banks to choose more leverage. Although this leads to higher investment growth, the banking sector becomes more vulnerable to aggregate shocks (crises). We also show that learning about the likelihood of a crisis could...

We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their...

The 2008-2009 crisis was characterized by an unprecedented degree of international synchronization as all major industrialized countries experienced large macroeconomic contractions around the date of Lehman bankruptcy. At the same time countries also experienced large and synchronized...