It is commonly argued that poorly designed banking system safety nets are largely to blame for the frequency and severity of modern banking crises. For example, “underpriced” deposit insurance and/or low reserve requirements are often viewed as factors that encourage risk-taking by banks. In...

This paper investigates the asymptotic properties of the likelihood ratio statistic for testing homogeneity in a bivariate normal mixture model with known covariance. The asymptotic null distributions of the likelihood ratio statistic and a modified likelihood ratio statistic are obtained in...

The authors study a one-sector growth model where capital investment is credit financed and there is an adverse selection problem in credit markets. The presence of adverse selection creates an indeterminacy of equilibrium. Many equilibria display permanent fluctuations characterized by...

Does monetizing a deficit always result in a higher rate of inflation than bond financing the same deficit? T. J. Sargent and N. Wallace (1981) produced conditions under which the answer was negative ('unpleasant monetarist arithmetic'). Subsequent authors have challenged the empirical validity...

In this paper, we expand previous models with banks and money and explore the consequences of seasonals in the banking system. We find that, when bank failures occur, not all of them have associated large output losses and currency premiums exist. We show that the most important sources of...

Generalized M (or GM) estimation has been extended to the case of a nonlinear regression model with autoregressive and heteroscedastic errors. The robustness properties of the GM estimators have been investigated based on the time-series analog of Hampel's influence function. The asymptotic...