The monetary unit assumption of financial accounting assumes a stable currency i.e., constant purchasing power over time . Yet, even during periods of low inflation or deflation, nominal financial statements violate this assumption. I posit that, while the effects of inflation are not recognized in nominal statements, such effects may have economic consequences. I find that unrecognized inflati...

We consider the effects of central-bank purchases of a risky asset, financed by issuing riskless nominal liabilities (reserves), as an additional dimension of policy alongside “conventional” monetary policy (central-bank control of the riskless nominal interest rate), in a general-equilibrium model of asset pricing and risk sharing with endogenous collateral constraints of the kind proposed by ...

Asset forfeiture laws allow the seizure of assets used in the commission of a crime. This paper examines the impact of such laws on deterrence by incorporating the possibility of asset forfeiture into the standard economic model of crime. When punishment is by a fine that can be optimally chosen, forfeiture is never optimal because of the deadweight loss it imposes in the capital market. When t...

The impact of financial leverage on firm investment is one of the most important issues in corporate finance. Debt overhang reduces the incentives of shareholder–management coalition in controlling the firm to invest in positive net-present-value investment opportunities. On the other hand, firms without debt in their financial structure face with a new problem known as over-investment. T...

This paper analyzes the adjustments in the structure of assets and liabilities of the Austrian banking sector taking place after a monetary tightening. Following increases in short-term interest rates, the share of loans to non-banks in interest-earning assets rises, which is at odds with predictions from the bank lending channel of monetary policy transmission. An extension of credit to nonfin...