Suchergebnisse

We present a tractable dynamic general equilibrium model of self-fulfilling bank runs, where banks trade capital in competitive and liquid markets but remain vulnerable to runs due to a loss of creditor confidence. We characterize how the vulnerability of an individual bank depends on its leverage position and the economy-wide asset prices. We study the effect of credit easing policies, in the form of asset purchases. When a banking crisis is generated by runs, credit easing can reduce the number of defaulting banks and enhance welfare. When the crisis is driven by fundamentals, credit easing may have adverse consequences. (JEL E32, E44, E58, G01, G21, G28, G33)

We establish that creditor beliefs regarding future borrowing can be self-fulfilling, leading to multiple equilibria with markedly different debt accumulation patterns. We characterize such indeterminacy in the Eaton-Gersovitz sovereign debt model augmented with long maturity bonds. Two necessary conditions for the multiplicity are (i) the government is more impatient than foreign creditors, and (ii) there are deadweight losses from default. The multiplicity is dynamic and stems from the self-fulfilling beliefs of how future creditors will price bonds; long maturity bonds are therefore a crucial component of the multiplicity. We introduce a third party with deep pockets to discuss the policy implications of this source of multiplicity and identify the potentially perverse consequences of traditional "lender of last resort" policies. (JEL E44, E62, F34, H63, G12)

We characterize the design of an optimal trade agreement when governments are privately informed about the value of tariff revenue. We show that the problem of designing an optimal trade agreement in this setting can be represented as an optimal delegation problem when a money burning instrument is available. In a specification with quadratic payoffs and a uniform distribution, we find that the tariff cap and the probability of binding overhang are higher when the upper bound of the support distribution is higher and when the support distribution has greater width.