The bilateral netting of mutual obligations is an institutional arrangement usually employed in payment systems to reduce settlement risks. In this paper we explore its advantages and pitfalls when applied to an inter-bank lending market, in which banks extend credit to - and borrow from - other...

The cross holding of interbank deposits represents an optimal ex-ante co-insurance arrangement whenever the uncertainty concerning banks' liquidity needs is idiosyncratic and imperfectly correlated. When a shock to aggregate liquidity demand occurs, however, such an arrangement could be...

Until the 1970s, there was a consensus in applied macroeconometrics, both regarding the theoretical foundation and the empirical specification of macroeconometric modelling, commonly known as the Cowles Commission approach. This is no longer the case: the Cowles Commission approach broke down in...