We present a theory of interpersonal economic changes based on three simplest elements: Positive Sum Games, Zero-Sum and Games «with subtraction». This proposal integrates Menger’s Mises’s theories; it includes also the distinction made by Böhm-Bawerk between goods promises. On such ground we comprehensive explanation for boom-burst cycle processes, distinguishing where is damaging character re...

The goal of this paper is to provide a framework to analyze the e¤ectiveness of bank coalition formation in response to an external aggregate shock that may cause disruption to the payment mechanism and real economic activity. I show that the kind of insurance mechanism provided by a speci…c type of bank coalition allows society to completely prevent any disruption to real activity that can be ...

This paper contributes to the primarily empirical literature by conducting the first extensive empirical analysis of the impact of the degree of co-movement in the main standardized credit default swap (CDS) indices on the group of systemically relevant large complex financial institutions (LCFIs). We attempt to account for the dynamics between banks’ equity returns and most liquid CDS market i...

The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and raising capital requirements very substantially. The argument is based on the observation that the current...

Confronted by the current global economic crisis, Taipei,China’s economy has suffered much like its neighbors. However, Taipei,China is different from other East Asia economies in several aspects. First, Taipei,China’s industrial organization is dominated by small and medium-sized enterprises (SMEs), unlike the chaebols of the Republic of Korea or the Japanese Kabushiki-gaish. Second, Taipei,Ch...

I investigate how the complicated model-based capital regulation can be misused by European banks for capital saving purposes. I find that relative to banks from core countries, banks from peripheral countries (1) can greatly reduce the risk-weight associated with their assets by applying more internal rating-based (IRB) approach, and (2) the default frequency of their assets is not reflected i...

How does finance affect employment and inter-industry job reallocations? We present a model that predicts that financial development (i) raises employment and wages, its impact being smaller at high levels of the equilibrium wage and financial development; (ii) may induce either more or less job reallocations, depending on whether shocks to profit opportunities or to cash flow are more prevalen...

I study the e¤ectiveness of bank coalition formation in response to an external aggregate shock that may cause disruption to the payment mechanism and trading activity. I show that a speci…c type of bank coalition (a joint-liability arrangement) is an e¤ective arrangement that allows member banks to build a capital bu¤er that permits them to absorb the e¤ects of an external shock. In particular...

This paper characterizes the optimal level of deposit insurance (DI) when bank runs are possible. In a wide variety of environments, the optimal level of DI only depends on three sufficient statistics: the sensitivity of the likelihood of bank failure with respect to the level of DI, the utility loss caused by bank failure (which is a function of the drop in depositors’ consumption) and the exp...

The adverse effects of financial crises in terms of output losses or output growth below its potential can be treated like losses from catastrophic events which have a low likelihood but a large impact in the event that they occur. We therefore analyze GDP losses in terms of frequency (number of loss events per period) and severity (loss per occurrence). Crises’ frequency, severity, and the ass...