This paper explores the financial stability implications of mark-to-market accounting, in particular its tendency to amplify financial cycles and the "reach for yield". Market prices play a dual role. Not only do they serve as a signal of the underlying fundamentals and the actions taken by...

When does the combination of flexible exchange rates and domestic inflation-oriented monetary policy guarantee insulation from global financial conditions? We examine a dynamic global game model of international portfolio flows where, for some combination of parameters, the unique equilibrium...

This paper studies how private demand for public liquidity affects the independence of a central bank vis-à-vis the fiscal authority. Whereas supplying liquidity to the private sector creates degrees of freedom for fiscal and monetary authorities vis-à-vis each other, we show that the...