The paper discusses the currents that led to the 2007-2009 financial crisis. We discuss the crisis in a historical context and present evidence regarding the incidence and unit price of risk. Our results show that the unit price of risk prior to the subprime crisis is comparable to the price of risk prior to the great depression and similar to the price of risk at onset of the technology bubble. We then discuss global imbalances, the associated risks with regard to international optimal allocation of capital, and arrangements to minimize problems of global imbalances.

Technological revolution, avalanche-growing financial technology (FinTech) companies, customers waiting for unlimited service, and regulations based on data sharing point to a new era in banking. The new era, open banking, provides an expansion of the scope of banking services offered in a wide geography from European Union countries to China, from the United States to South American countries. In the new period, it is aimed to provide more innovative, inclusive and practical services by sharing the authorized data of customers with FinTech companies. It is seen that the countries show significant differences and similarities in their open banking practices. In this descriptive study, the steps taken in the United Kingdom, where the concept was first implemented, and in Turkey, where the relevant legislation is still under preparation, together with the studies carried out by the regulatory institutions in the world's two largest economies, the United States of America and the People's Republic of China, are chronologically. Throughout the study, open banking is evaluated mainly through the payment initiation service and account information service and their providers.

This paper revisits the controversy over whether retail gasoline prices respond to increases in upstream prices more rapidly than decreases. Using threshold and momentum models of cointegration and daily data at different stages in the distribution chain, we find that transmission between upstream and downstream prices is mostly asymmetric in the momentum model: increases in upstream prices are passed on to downstream prices more quickly than decreases. We distinguish between small and large shocks and show that the asymmetry is more pronounced for small shocks, which may be due to consumer search costs.

We examine several discrete-time versions of the Cox, Ingersoll and Ross (CIR) model for the term structure, in which the short rate is subject to discrete shifts. Our empirical analysis suggests that careful consideration of which parameters of the short-term interest rate equation that are allowed to be switched is crucial. Ignoring this issue may result in a parameterization that produces no improvement (in terms of bond pricing) relative to the standard CIR model, even when there are clear breaks in the data.

This paper investigates episodes of financial stress and its relationship to economic activity in some Southeast Asian economies. To that end, we use a dynamic factor model to construct a financial stress index for Indonesia, South Korea, Malaysia, the Philippines, and Thailand and examine the relationship between financial stress and economic activity. Our financial stress index consists of riskiness in the banking sector, security market risk, currency risk, external debt and sovereign risk. Empirical results indicate that our financial stress index tracks recessions closely in the sample and impulse response functions suggest financial stress causes significant economic slowdowns.

We compare actual and calibrated values for the foreign exchange risk premium based on the definition in [J. Int. Econ. 32 (1992) 305]. Calibrated values are found from within a dynamic stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents with unconventional preferences. We find that the equilibrium foreign exchange risk premium is a function of exogenous shocks in the model and is sensitive to assumed attitudes towards risk. Furthermore, various forms of policy uncertainty improve the capacity of the model to generate values closer to those found in the data.

In this paper we use a continuous-time, stochastic, dynamic general equilibrium model to provide estimates of the growth and welfare effects of monetary volatility. Our primary concern is to highlight the long-run consequences of different monetary environments in a small open economy. Using UK-relevant data to set key parameter values in the model, we carry out three policy experiments. We find that (i) eliminating monetary growth shocks and (ii) reducing the infation rate can each generate positive growth and welfare effects, while (iii) reducing the interest rate depresses growth and is welfare deteriorating. However, these results are sensitive to the values set for the risk aversion and intertemporal substitution parameters. Most notably, in some cases, high degrees of risk aversion are suffcient to change the direction of the infuence of volatility on growth and welfare an issue currently challenging the profession.

The effectiveness of proposed reforms to the tax system intended to stimulate investment depends on how capital structure affects corporate behaviour. A dynamic general equilibrium model, calibrated for the UK, is used to investigate the difference between three models of financial structure, including one of endogenous structure motivated by agency theory. It is shown that the difference in predicted effects can be significant, and that the impact of the reform on the marginal source of funds is crucial.

How do regulatory changes in a foreign country affect the lending growth in another country? This paper addresses this question using bank-level data from Turkey and macroprudential measures from fifty-six countries over a sample period of 2006-13. We offer evidence for the existence of the inward transmission of foreign prudential regulations by showing that the macroprudential tightening abroad leads to lending growth by the banks in Turkey. We find that domestic affiliates of foreign banks play a more prominent role in this transmission. We show that the existence and the magnitude spillovers differ across bank characteristics or the prudential instruments. Finally, our results indicate that the spillovers depend on the financial cycles.

We explore the role of taxes on stimulating investment decisions for levered firms under cashflows and investment costs uncertainty using the adjusted present value-based real options approach developed by Myers and Read (2019). We extend their work to consider combined tax credits and uncertain investment costs. We then run a numerical analysis to quantify the impact of uncertainty, corporate tax and investment tax credit in stimulating investments.

We develop a model of regime-switching risk premia as well as regime-dependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The presence of discrete shifts is due to systematic and unsystematic risk associated with changes in business cycles or in economic policy regimes or events such as takeovers, major changes in business plans. We analyze the impact of regime-switching behavior on the valuation of projects and investment opportunities. We find that accounting for Markov switching risk results in a delay in the expected timing of the investment while the regime-specific factor risk premia make the possibility of a regime shift more pronounced.

This paper investigates the equilibrium relationship between taxation, portfolio choice (risk-taking) and capital accumulation. Specifically, it examines how taxes affect risk-taking and capital accumulation. We extend the existing literature by relaxing two crucial assumptions in modelling risk-taking behavior: (i) that the investment opportunity set is fixed and (ii) that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution. We extend the investment opportunity set of individuals through optimally determined human capital; and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function. In the presence of these extensions, the paper successfully derives a closed-form solution to the stochastic growth model with stochastic wage income.

There is a large and growing literature on the welfare cost of inflation. However, work in this area tend to find moderate estimates of welfare gains. In this paper we reexamine welfare costs of inflation within a stochastic general equilibrium balanced growth model paying a particular attention to recursive utility, portfolio balance effects, and monetary volatility and monetary policy uncertainty. Our numerical analysis shows that a monetary policy that brings down inflation to the optimum level can have substantial welfare effects. Portfolio adjustment effects seem to be the dominant factor behind the welfare gains.

This paper provides estimates of the welfare cost of volatility attributable to monetary and fiscal policy shocks. It uses a continuous-time stochastic dynamic general equilibrium model based on a recursive utility function that disentangles risk aversion from intertemporal substitution. We find that monetary and fiscal policy shocks may lead to opposite welfare effects: negative for monetary growth shocks, but positive for government expenditure shocks. Furthermore, we find that welfare costs are sensitive to the parameter values chosen for risk aversion and intertemporal substitution, and we conclude that welfare costs are potentially much larger than that found by Lucas, forcing some modification of the policy conclusions associated with Lucas's pioneering work.