How damaging are uncertainty shocks during extreme events such as the great recession and the Covid-19 outbreak? Can monetary policy limit output losses in such situations? We use a nonlinear VAR framework to document the large response of real activity to a financial uncertainty shock during...

How damaging are uncertainty shocks during extreme events such as the great recession and the Covid-19 outbreak? Can monetary policy limit output losses in such situations? We use a nonlinear VAR framework to document the large response of real activity to a financial uncertainty shock during...

This paper studies the limitations of the ‘credit channel' in transmitting monetary policy into real economic outcomes. We focus on one particular failure of the credit channel in which although the central bank is infusing money into the banking system, liquidity remains stuck in banks and is...

What makes financial institutions, banks and hedge funds fail? The common ingredient is over betting and not being diversified in some bad scenarios that can lead to disaster. Once troubles arise, it is difficult to take the necessary actions that eliminate the problem. Moreover, many hedge fund...

This paper develops a debt-run model to study the effects of liquidity injections on debt markets in the presence of a renegotiation option. In the model, creditors decide when to withdraw their funding and equityholders can renegotiate the contract terms of debt. We show that when equityholders...