When the risk premium in the US stock market fell far below its historic level, Shiller (2000) attributed this to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of...

Credit market imperfections have been blamed for the depth and persistence of the Great Depression in the USA. Could similar mechanisms have played a role in ending the East Asian miracle? After a brief account of the nature of the recent crises, we use a model of highly levered...

The risk premium in the US stock market has fallen far below its historic level, which Shiller (2000) attributes to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of...

Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy-style procedures to protect debtors? With the waiver of immunity, sovereign debtors who al-ready face severe disruption from short-term creditors grabbing their currency reserves are also exposed to...

This paper shows (i) how entry and exit of firms in a competitive industry affect the valuation of securities and optimal capital structure, and (ii) how, given a trade-off between the tax advantages and agency costs, a firm will optimally adjust its leverage level after it is set up. We derive...

Increasing emphasis has been placed on the need for an effective lender of last resort for sovereign states and on procedures for sovereign debt restructuring to help cope with global financial crises. Where private creditors use short-term debt to check sovereign debtor`s moral hazard, there is...

We examine the effects of introducing stochastic shocks into a linear rational expectations model with saddlepoint dynamics generated by a forward-looking asset price. We derive the fundamental differential equation governing the path of the asset price as a function of the quot;sluggishquot;...