This paper presents a dynamic model of a bank's optimal choices of imposing a binding liquidity-coverage-ratio (LCR) constraint. Our baseline balance-sheet dynamics starts with portfolio separation and no LCR constraint. Under a scenario in which regulators prohibit banks from applying...

In this paper we develop a model of the banking firm that enables us to test for portfolio separation. Our theoretical model generalizes existing intertemporal adjustment-cost models by assuming that these costs coexist simultaneously on both sides of the bank's balance sheet. The optimal...

This policy brief examines issues associated with the design and implementation of regulatory policymaking in interconnected financial markets. The policy brief explains why international interdependence among nations' financial markets and regulations can provide an incentive for national...

This paper discusses and critically appraises recent developments in the definition, measurement, and regulation of systemic risks. Although the issue of systemic risks has been subjected to considerable study, there is not widespread agreement on how to define this concept. Initial efforts to...

This paper utilizes a profit maximizing banking model to analyze sweeping behavior. Comparative statics results indicate that sweeping responds positively to increases in bank loan rates and reserve ratios and negatively to increases in the interest rate on reserves or to exogenous increases in...

This paper shows how economic interdependence affects wage indexation decisions when monetary authorities do not observe stochastic disturbances. Under a managed exchange rate, atomistic wage setters in interdependent nations will choose the same degree of indexation as they would in a small...

We use a simple model of investment and external finance to analyze the relationship among the issuance of securities, financial market valuations and, alternatively, aggregate investment or cash flows. We find that issuance is driven by market valuations, and does not influence aggregate...

Economists have traditionally used a simple rule that restricts primary deficits to less than a threshold given by the interest rate growth rate differential and existing debt level to judge fiscal sustainability. This rule derives from a single period application of the government's budget...