This paper characterizes the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side. The impacts of such reserve requirements on the equilibrium default risk and borrowing are analyzed and their welfare...

This paper characterizes the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side. The impacts of such reserve requirements on the equilibrium default risk and borrowing are analyzed and their welfare...

The constant elasticity utility function implies that the intertemporal elasticity of substitution is the inverse of the coefficient of relative risk aversion. With empirical evidence suggesting that this relationship may or may not hold, studies of risk and growth should decouple these two...