We examine permanent effects of monetary expansion in an economy where access to credit for financing consumption and investment is limited and consumers and firms are cash-constrained. The main difference between our model with those of Cooley-Hanson (1989) and Walsh (2003) is that investment, in addition to consumption, is subject to a cash-constraint. In this respect, our model is...

This paper argues that market price sensitive capital regulation together with financial regulator’s bailout policy can induce banks to herd by investing in highly correlated asset ex ante, thus increase the likelihood of systemic risk ex post. The paper follows Acharya and Yorulmazer’s (2007) study of “Too Many to Fail” problem in a twobank model. They argue that in order to reduce the social ...

Credit default swaps (CDSs) are derivative contracts that allow agents to shift the risk of default on an underlying credit from a credit protection buyer to a credit protection seller. Like other derivatives they are standardised relative to the underlying cash markets and in this way can help promote market liquidity. This in turn can facilitate risk shifting and price discovery. In this way ...

The flow of new information into a market changes prices as participants adjust their expectations in light of their new knowledge. This paper links two strands of existing micro-structure research by integrating recent findings on how macroeconomic announcements move markets with well-known theoretical relationships between asset prices and the value of their derivatives. This allows us to dev...

This article investigates the impact of cash flow risk and discounting risk on the aggregate equity premium. Our approach is based on the idea that consumption is hard to measure empirically, so if we substitute out an empirically difficult-to-estimate marginal utility by a pricing kernel of observables, we can evaluate the empirical performance of an equilibrium asset pricing model in a differ...

The rural market was an important constituent of marketing system, and formed an un-vertical congruent relationship with urban market in late imperial China. There were different types of rural fair in the imperial China. Xu, Chang, Ji, Dian, Shi, Hui, all of them were the regular fairs. Their number was huge. They distributed widely, played a distinct role, and became the base of rural market ...

We consider a moral hazard setup wherein leveraged firms have incentives to take on excessive risks and are thus rationed when they attempt to borrow in order to meet liquidity shocks. The rationed firms can optimally pledge cash as collateral to borrow more, but in the process must liquidate some of their assets. Liquidated assets are purchased by non-rationed firms but their borrowing capacit...

This paper reviews and interprets changes in rural livelihoods in southern Malawi following market liberalisation. It argues that, by reducing household maize production, market liberalisation has increased the need for resourcepoor smallholders to develop market strategies that provide them with income security. Whereas previous scenarios for poverty elimination in Malawi were based either on ...

Uninformed investors facing future carrying cost (liquidity) shocks determine primary market prices for asset-backed securities. A liquidity provider subsequently buys tendered securities in competitive secondary markets. Liquidity provision is distorted by a speculator receiving a private signal regarding cash flow. Optimal structuring minimizes total trading loss and carrying cost discounts d...