When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial marketsu0092 organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the...

We describe a dynamic model of financial intermediation in which fundamental characteristics of the economy imply a unique equilibrium path of bank and financial market lending. Yet we also show that economies whose fundamental characteristics have converged may continue to have very different...

We analyze the properties of the natural rate of interest in an economy where nominal debt contracts generate a spread between loan rates and the policy interest rate. In our model, monetary policy has real effects in the flexible-price equilibrium, because it affects the credit spread. Relying...

A new instrument for hedging weather risks has made its appearance in the financial arena. Trade in 'weather derivatives' has taken off in the US, and interest is growing elsewhere. Whilst such contracts may be simply interpreted as a new tool for solving a historical problem, the question...

We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one. This model produces two kinds of equilibria, a fundamental and a bubble one. In a...

The recent introduction of the realized variance measure defined as the sum of the squared intra-daily returns stamped on some high frequency basis has spurred the research in the field of volatility modeling and forecasting into new directions. First, the realized variance is a much better...

There is a strong evidence that most of financial variables are better described by a combination of difusion and jump processes. Considering such evidence, researchers have studied security market models with jumps, in particular, in the context of option pricing. In most of their models, jump...

In this paper we develop a dynamic model for integer counts to capture the dis- creteness of price changes for financial transaction prices. Our model rests on an autoregressive multinomial component for the direction of the price change and a dynamic count data component for the size of the...

A small strand of recent literature is occupied with identifying simultaneity in multiple equation systems through autoregressive conditional heteroscedasticity. Since this approach assumes that the structural innovations are uncorrelated, any contemporaneous connection of the endogenous...