Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by...

In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good...

Although financial instruments that, in effect, permit corporations to treat preferred stock dividends as tax-deductible interest have been used by nonfinancial corporations since late 1993, bank holding companies (BHCs) did not issue these trust-preferred securities (TPS) until 1996, when the...

In this paper we investigate the relationship between changes in risk and changes in leverage for a panel of Swiss banks. Using market data for risk and both accounting and market data for capital for the period between 1990 and 2002, we find a positive correlation between changes in capital and...

In this paper, I explore how optimal aggregate dynamics can be shaped by the presence of moral hazard in unemployment insurance. I also analyze the optimal provision of unemployment insurance and the implications for the amount of cross-sectional heterogeneity. The economy that I consider embeds...

We examine whether the introduction of the euro had a significantly positive impact on the synchronization of business cycles among members of Economic and Monetary Union (EMU) which might arise due to the lack of country-specific monetary policy shocks in the euro area. Empirical evidence on...

Policy makers need to separate between temporary demand-driven shocks and permanent shocks in order to design optimal aggregate demand policies. In this paper we study the case of a central bank that ignores the presence of hysteresis when identifying shocks. By assuming that all low-frequency...

We propose an event-study research design to identify the nature and propagation of large unusual shocks in DSGE models and apply it to study the macroeconomic effects of the Covid shock. The initial outbreak is represented as the onset of a new shock process where the shock loads on wedges...

The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This guide describes its specification, estimation, dynamic characteristics, and how it is used to forecast the U.S. economy. In many respects...

We study international business cycles and capital flows in the UK, the United States and the Emerging Periphery in the period 1885-1939. Based on the same set of parameters, our model explains current account dynamics under both the Classical Gold Standard and during the Interwar period. We...