We develop a formula for the market value of debt when the borrower’s repayment capacity varies stochastically, and shortfalls are rolled over. The value of a marginal dollar of nominal claim is an S-shaped function of the ratio of the repayment capacity to the amount of nominal debt. Shifts...

We present a model of a “soft” exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate’s current level, thus allowing the rate to move...

We use daily data on bank reserves and overnight interest rates to document a striking pattern in the high-frequency behavior of the U.S. market for federal funds: depository institutions tend to hold more reserves during the last few days of each "reserve maintenance period", when the...

"We propose a model of the interbank money market with an explicit role for central bank intervention and periodic reserve requirements, and study the interaction of profit-maximizing banks with a central bank targeting interest rates at high frequency. The model yields predictions on biweekly...