Recent data show substantial increases in the size of gross external asset and liabilitypositions. The implications of these developments for optimal conduct of monetarypolicy are analyzed in a standard open economy model which is augmented to allowfor endogenous portfolio choice. The model...

Cross-country capital flows have increased greatly, since the liberalization of internationalcapital markets two decades ago. Equity home bias, while less severe than earlier, remains sizeableand is observed in all industrialized countries. There are broadly two classes of explanations for...

This paper investigates the returns and flows of German money marketfunds before and during the liquidity crisis of 2007/2008. The mainfindings of this paper are: In liquid times money market funds enhancedtheir returns by investing in less liquid papers. By doing so they outperformedother funds...

Stress testing has become a crucial point on the Basel II agenda, mainly as Pillar I estimatesdo not explicitly take portfolio concentration into account. We start from the credit portfolioof the German pension insurer being a cross-sectional representation of the German economyand subsequently...

Rating downgrades are known to make subsequent downgrades more likely. We analyze theimpact of this ‘downward momentum’ on credit portfolio risk. Using S&P ratings from 1996to 2005, we estimate a transition matrix that is insensitive to and a second matrix that is sensitiveto previous...