We develop a theoretical model that shows that in the near future, the monetary policies of some key central banks in advanced economies (AEs) will have two dimensions-changes in short-term policy rates and balance sheet adjustments. This will affect emerging market economies (EMs), especially...

Nonbanks such as central counterparties (CCPs) are a useful lens to see how regulators view the role of the lender-of-last-resort (LOLR). This paper explores the avenues available when a nonbank failure is likely, specifically by considering the options of keeping CCPs afloat. It is argued that...

Changes to the regulatory system introduced after the financial crisis include not only mandatory clearing of OTC derivatives at central counterparties and margining of uncleared derivatives, but also prudential measures, including notably a 'Liquidity Coverage Ratio' which obliges firms to set...

In this paper, we discuss the modern history of monetarism and its alternatives, as well as the changing empirical relationship of various measures of money and inflation. After demonstrating that previous naïve correlations between money and inflation as established in the 20th century...

Probability of default (PD) measures have been widely used in estimating potential losses of, and contagion among, large financial institutions. In a period of financial stress however, the existing methods to compute PDs and generate loss estimates may vary significantly. This paper discusses...

In the aftermath of the Lehman crisis, payouts (i.e., taxpayer bailouts) in various forms were provided by governments to a variety of financial institutions and markets that were outside the regulatory perimeter - the "shadow" banking system. Although recent regulatory proposals attempt to...

Deleveraging has two components -- shrinking of balance sheets due to increased haircuts/shedding of assets, and the reduction in the interconnectedness of the financial system. We focus on the second aspect and show that post-Lehman there has been a significant decline in the interconnectedness...

Between 1980 and before the recent crisis, the ratio of financial market debt to liquid assets rose exponentially in the U.S. (and in other financial markets), reflecting in part the greater use of securitized assets to collateralize borrowing. The subsequent crisis has reduced the pool of...

This paper looks at some technical issues when using CDS data, and if these are incorporated, the analysis or regression results are likely to benefit. The paper endorses the use of stochastic recovery in CDS models when estimating probability of default (PD) and suggests that stochastic...

This paper highlights the changing collateral landscape and how it may shape the global demand/supply for collateral. We first identify the key collateral pools (relative to the "old" collateral space) and associated collateral velocities. Post-Lehman and continuing into the European crisis,...