Showing 1 - 10 of 535
The theory of monotone comparative statics and supermodular games is presented as the appropriate tool to model …
Persistent link: https://www.econbiz.de/10005123543
Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible environments. In this article, we provide a simple solution to this problem in a general incomplete-market economy in which a hedger, guided by the traditional minimum-variance...
Persistent link: https://www.econbiz.de/10009024486
We investigate the question of whether sophistication in risk management fosters banking stability. We compare a simple banking system in which an average rating is used with a sophisticated banking system in which banks are able to assess the default risk of entrepreneurs individually. Both...
Persistent link: https://www.econbiz.de/10005789172
Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank transactions, such as in one-month and three-month LIBOR markets. We provide an explanation of such stress in term lending by modelling leveraged banks’ precautionary demand for liquidity. When...
Persistent link: https://www.econbiz.de/10009385771
This paper employs cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Using these profiles, we estimate a structural model of optimal...
Persistent link: https://www.econbiz.de/10005504201
This paper develops a theory of regular Markov perfect equilibria in dynamic stochastic games. We show that almost all …
Persistent link: https://www.econbiz.de/10005497794
We develop a continuous-time dynamic model with switching costs. In a relatively simple Markov Perfect equilibrium, the dominant firm concedes market share by charging higher prices than the smaller firm. In the short-run, switching costs might have two types of anti-competitive effects: first,...
Persistent link: https://www.econbiz.de/10011084030
Inflation-targeting central banks have only imperfect knowledge about the effect of policy decisions on inflation. An important source of uncertainty is the relationship between inflation and unemployment. This Paper studies the optimal monetary policy in the presence of uncertainty about the...
Persistent link: https://www.econbiz.de/10005067479
Mean-variance criteria remain prevalent in multi-period problems, and yet not much is known about their dynamically optimal policies. We provide a fully analytical characterization of the optimal dynamic mean-variance portfolios within a general incomplete-market economy, and recover a simple...
Persistent link: https://www.econbiz.de/10005656376
Rational expectations are often used as a strong argument against policy activism, as they may undermine or neutralize the policymaker’s actions. Although this sometimes happens, rational expectations do not always imply policy invariance or ineffectiveness. In fact, in certain circumstances...
Persistent link: https://www.econbiz.de/10005661866