We conducted a lab experiment to examine how bonus caps and malus affect individuals' choices of risk and effort. We find that a bonus structure that rewards individuals proportionally to realised investment returns, but does not penalise negative returns, encourages risk-taking; while a bonus...

We conducted a lab experiment with 253 participants to examine how constraints on bonus akin to bonus regulations, such as bonus cap and malus, could affect individuals' risk-taking in the presence of relative performance pay. Participants took greater risks when bonus was linked to investment...

This paper analyzes the effect of bank capital adequacy regulation on the monetary transmission mechanism. Using a general equilibrium framework and a representative bank, the model demonstrates that the monetary transmission mechanism is weakened if banks are poorly capitalized, or if the...

This paper analyzes the effect of bank capital adequacy regulation on the monetary transmission mechanism. Using a general equilibrium framework and a representative bank, the model demonstrates that the monetary transmission mechanism is weakened if banks are poorly capitalized, or if the...

Recent research has found evidence of increasing comovement in CPI inflation rates across industrialised countries. This paper considers whether this can be attributed to greater global integration of product markets. To examine this question, we build a data set of 28 matched product category...

This paper examines the welfare implications of international monetary co-operation using a stylised two-country New Keynesian general equilibrium model of imperfect information. We show that setting a self-oriented monetary policy rule generally leads to welfare gains relative to passive...

This paper develops a model to analyse the optimal ex-ante capital and total loss absorbing capacity (TLAC) requirements, and the ex-post resolution policy of banks. Banks in our model are subject to two types of moral hazard: i) ex-ante, they have the incentive to shirk on project monitoring,...

This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. Unprofitable banks have strong incentives to invest in risky assets and generate inefficient credit booms when macroeconomic fundamentals are...

The first, the allocation channel, operates through the constraints and incentives of financial institutions. By employing regulatory tools that affect the cost-benefit trade-offs of financial decisions, the authority would incentivise financial institutions to reallocate their resources across...

This paper examines how the interactions between the valuation regime and solvency requirements influence investment behaviour of long-term investors with stable liabilities, such as life insurers. Under limited liability, solvency requirements based on historical cost valuation encourage...