Distinguishing between risk and uncertainty, this paper draws on the psychological literature on heuristics to consider whether and when simpler approaches may out-perform more complex methods for modelling and regulating the financial system. We find that: (i) simple methods can sometimes...

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The preliminary version of the model, which is still in its development phase, is based on detailed balance sheets for UK banks and encompasses macro-credit risk,...

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The model is known as RAMSI and is still in its development phase. It is based on detailed balance sheets for UK banks and encompasses macro-credit risk, interest and...

This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. In our model, unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the...

This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. Unprofitable banks have strong incentives to invest in risky assets and generate inefficient credit booms when macroeconomic fundamentals are...

We study a general equilibrium model in which informational frictions impede entrepreneurs' ability to borrow and banks' ability to intermediate funds. These financial market frictions are embedded in an otherwise-standard dynamic New Keynesian model. We find that exogenous shocks have an...

We present a general equilibrium model of intermediation designed to capture some of the key features of the modern financial system. The model incorporates financial constraints and state-contingent contracts, and contains a clearly defined pecuniary externality associated with asset fire sales...