We propose a new non-recursive identification scheme for uncertainty shocks, which exploits breaks in the unconditional volatility of macroeconomic variables. Such identification approach allows us to simultaneously address two major questions in the empirical literature on uncertainty: (i) Does...

Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result...

We develop an operational model of information contagion and show how it may be integrated into a mainstream, top-down, stress-testing framework to quantify systemic risk. The key transmission mechanism is a two-way interaction between the beliefs of secondary market investors and the...

How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt...

The global financial crisis has brought to an end a rather unprecedented period of banks' international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years...

This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral...

We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

We analyze the impact of financial crises and monetary policy on the supply of wholesale funding liquidity, and also on the compositional supply effects through cross-border and relationship lending. For empirical identification, we draw on the proprietary bank-to-bank European interbank dataset...

This paper contributes to the literature on early warning indicators by applying a Bayesian model averaging approach. Our analysis, based on Austrian data, is carried out in two steps: First, we construct a quarterly financial stress index (AFSI) quantifying the level of stress in the Austrian...

We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks' reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the...