Using the recent EC Commission report `One Market, One Money' as a point of reference, we consider the merits of a single currency in Europe. The main benefit is the reduction in transaction costs, which the report estimates at 0.4% of European Community (EC) GDP (but much less in countries with...

The EMS's robustness in the face of stochastic shocks is studied, using the Liverpool World Model and the optimal strategy algorithm of Brandsma and Hughes Hallett. The EMS began life in 1979 with a system design permitting regular parity changes; we find this design to be relatively unstable,...

We consider the strategic timing of information releases in a dynamic disclosure model. Because investors don’t know whether or when the firm is informed, the firm will not necessarily disclose immediately. We show that bad market news can trigger the immediate release of information by firms....

We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy by ameliorating the under-investment problem of the financial sector. However, increasing taxation of the non-financial sector to fund the bailout may be inefficient since it...

What determines the sustainability of sovereign debt? In this paper, we develop a model where myopic governments seek electoral popularity but can nevertheless commit credibly to service external debt. They do not default when they are poor because they would lose access to debt markets and be...

Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank transactions, such as in one-month and three-month LIBOR markets. We provide an explanation of such stress in term lending by modelling leveraged banks’ precautionary demand for liquidity. When...

We propose a theoretical framework to study the determinants of ethnic and religious identity along two distinct motivational processes which have been proposed in the social sciences: cultural conformity and cultural distinction. Under cultural conformity, ethnic identity is reduced by...

In August of 2007, banks faced a freeze in funding liquidity from the asset-backed commercial paper (ABCP) market. We investigate how banks scrambled for liquidity in response to this freeze and its implications for the real economy. Commercial banks in the United States raised deposits and took...

One of the several regulatory failures behind the global financial crisis that started in 2007 has been the regulatory focus on individual, rather than systemic, risk of financial institutions. Focusing on systemically important assets and liabilities (SIALs) rather than individual financial...

We model corporate liquidity policy and show that aggregate risk exposure is a key determinant of how firms choose between cash and bank credit lines. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit...