We develop a model in which a financial intermediary's investment in risky assets - risk taking - is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with...

We develop a model in which a financial intermediary's investment in risky assets - risk taking - is excessive due to limited liability and deposit insurance, and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with...

The financial sector bailouts seen during the Great Recession generated substantial opposition and controversy. We assess the welfare benefits of government-funded emergency support to the financial sector, taking into account its effects on risk-taking incentives. In our quantitative general...

We construct a small-open-economy, New Keynesian dynamic stochastic generalequilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features. First, it allows for non-trivial...