We propose an amplification mechanism of financial crises based on the information choice of investors. Adverse news about the solvency of a debtor raises the value of private information and therefore induces the acquisition of information. Informed investors rely more on private information...

We propose a parsimonious model of information choice in a global coordination game of regime change that is used to analyze debt crises, bank runs or currency attacks. A change in the publicly available information alters the uncertainty about the behavior of other investors. Greater strategic...

We introduce a general equilibrium model to analyze the interactions between liquidity regulations and banks' investment in complex assets. Complexity improves bank liquidity in good times but heightens vulnerability to runs during crises. Banks underinvest in complex assets when liquidity...

We examine the system-wide effects of liquidity regulation on banks’ balance sheets. In the general equilibrium model, banks have to hold liquid assets, and choose among illiquid assets varying in the extent to which they are difficult to value before maturity, e.g., structured securities. By...

How do firms manage recession risks? We solve a dynamic model with stochastic transitioning between recessions and expansions. In recessions, cash flows decline, cash-flow volatility increases, and both default and external financing costs increase. Firms manage the possibility of future...