We build a three-period model to investigate market failures in the market-based financial system. Institutional investors (IIs), such as insurance companies and pension funds, have liabilities offering guaranteed returns and operate under a risk-sensitive solvency constraint. They seek to...

We provide a micro-based rationale for macroprudential capital regulation by developing a model in which bankers can privately undertake a costly effort and reduce the probability of adverse shocks to their asset holdings that force liquidation (deterioration risk). Low fundamental risk of...

We provide a new rationale for macroprudential capital regulation by developing a model where banks can privately undertake a costly effort and reduce the probability of adverse shocks to their asset holdings and liquidation (deterioration risk). Low fundamental risk guarantees benevolent...

Universite Catholique de Louvain Faculte des sciences economiques, sociales et politiques Departement des Sciences Economiques Essays on Formulating and Estimating DSGE Models V Giulio...

We build a two-period model à la Holmstrom and Tirole (1998) in which bankers have access to a shadow banking technology which allows to liquefy partially illiquid investment projects (e.g. mortgages) and to manufacture shadow collateral (e.g. MBS). We study the bankers' security design of...

The paper shows that the time-consistent policy of public bailout affects the private liquidity choice of banks in several ways. First, banks anticipate public support in a liquidity crisis and seek large and socially inefficient exposures to shadow banking, defined as a privately costly...

Recent literature claims that key variables such as aggregate productivity and inflation display long memory dynamics. We study the implications of this high degree of persistence on the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. We show that long memory data produce...

This paper investigates the interrelations between monetary, macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth,...