Central banks can go broke and have done so, although mainly in developing countries. The conventional balance sheet of the central bank is uninformative about the financial resources it has at its disposal and about its ability to act as an effective lender of last resort and market marker of...

In this paper we argue that the relevant decision for the majority of US households is not the fraction of assets to be held in interest-bearing form, but whether to hold such assets at all (we call this ‘the decision to adopt’ financial technology). We show that the key variable governing...

We argue that there is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks. Tightness in the interbank market for liquidity leads banks to engage in what we term "liquidity pull-back," which involves...

We introduce the information microstructure of a canonical noisy rational expectations model (Hellwig, 1980) into the framework of a conventional real business cycle model. Each household receives a private signal about future productivity. In equilibrium, the stock price serves to aggregate and...

Survey respondents strongly disagree about return risks and, increasingly, macroeconomic uncertainty. This may have contributed to higher asset prices through increased use of collateralisation, which allows risk-neutral investors to realise perceived gains from trade. Investors with lower risk...

We demonstrate how endogenous information acquisition in credit markets creates lending cycles when competing banks undertake their screening decisions in an uncoordinated way, thereby highlighting the role of intertemporal screening externalities induced by lending market competition as a...

The fall in US macroeconomic volatility from the mid-1980s coincided with a strong rise in asset prices. Recently, this rise, and the crash that followed, have been attributed to overconfidence in a benign macroeconomic environment of low volatility. This paper introduces learning about the...

The introduction of the euro notes and coins during the first months of 2002 was followed by a lively debate on the alleged inflationary effects of the new currency. In Italy, as in the rest of the euro area, survey-based measures signaled a much sharper rise in inflation than measured by the...

The Paper provides a formalization of the monetary economics folk proposition that government fiat money is an asset of the holder (the private sector) but not a liability of the issuer (the state). Money is 'net wealth' in the limited sense that, after consolidation of the intertemporal budget...

This paper examines the distribution of output around capacity when money demand is a non-linear function of the nominal interest rate such that nominal interest rates cannot become negative. When fluctuations in output result primarily from disturbances to the money market, the variance of...