banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

interbank market liquidity and central bank intervention we develop a simple model of the interbank market where banks trade a long term safe asset when there is a lack of opportunities for banks to hedge idiosyncratic and aggregate liquidity shocks the interbank market is characterized by excessive price volatility in such a situation a central bank can implement the constrained efficient allocation by using open market operations to fix the short term interest rate it can be constrained efficient for banks to hoard liquidity and stop trading with each other if there is sufficient uncertainty about aggregate liquidity demand compared to idiosyncratic liquidity demand

alternative theories of the rate of interest in this paper i shall develop a framework which may be used to examine several alternative theories of the rate of interest the four most widely accepted approaches are the neo classical loanable funds keynes s liquidity preference neoclassical synthesis islm and basil moore s horizontalist or endogenous money i will use the framework developed here to present a fifth an integration of liquidity preference theory with an endogenous money approach i first briefly set forth the primary alternative approaches then develop an analytical framework based on an asset or stock approach and use it to discuss several theories of the interest rate those advanced by keynes by moore by neoclassical theory and the monetarists by kregel and by tobin finally i shall use the framework to reconcile liquidity preference theory with an endogenous money approach

environmental kuznets curves real progress or passing the buck abstract recent research has examined the hypothesis of an environmental kuznets curve ekc the notion that environmental impact increases in the early stages of development followed by declines in the later stages these studies have focused on the relationship between per capita income and a variety of environmental indicators results imply that ekcs may exist for a number of cases however the measures of environmental impact used generally focus on production processes and reflect environmental impacts that are local in nature and for which abatement is relatively inexpensive in terms of monetary costs and or lifestyle changes significantly more consumption based measures such co2 emissions and municipal waste for which impacts are relatively easy to externalize or costly to control show no tendency to decline with increasing per capita income by considering consumption and trade patterns the author re examines the concept of the ekc and proposes the use of alternative consumption based measures of environmental impact the author speculates that what appear to be improvements in environmental quality may in reality be indicators of increased ability of consumers in wealthy nations to distance themselves from the environmental degradation associated with their consumption

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

a model of a systemic bank run abstract this paper provides a model of the view that the 2008 financial crisis is reminiscent of a bank run focussing on six stylized key features in particular core financial institutions have invested their funds in asset backed securities rather than committed to long term projects in distress these can potentially be sold to a large pool of outside investors at steep discounts i consider two different motives for outside investors and their interaction with banks trading asset backed securities uncertainty aversion versus adverse selection i shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective in the former the crisis deepens the larger the market share of distressed core banks while a run becomes less likely instead as a result in the adverse selection version therefore the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities

lending booms smart bankers and financial crises this paper develops a theory that explains why financial crises follow profitable lending booms when agents exhibit the availability heuristic and there is a long period of banking profitability all agents banks their investors and regulators end up in an availability cascade overestimating bankers risk management skills and underestimating the probability that observed outcomes are due to good luck consequently banks profitably invest in riskier assets subsequently if a public signal reveals that outcomes are luck driven investors withdraw funds liquidity evaporates and a crisis ensues a loan resale market improves liquidity but increases the probability of a crisis

information contagion and bank herding we show that the likelihood of information contagion induces profit maximizing bank owners to herd with other banks when bank loan returns have a common systematic factor the cost of borrowing for a bank increases when there is adverse news on other banks since such news conveys adverse information about the common factor the increase in a bank s cost of borrowing relative to the situation of good news about other banks is greater when bank loan returns have less commonality in addition to the systematic risk factor hence banks herd and undertake correlated investments so as to minimize the impact of such information contagion on the expected cost of borrowing competitive effects such as superior margins from lending in different industries mitigate herding incentives

the loanable funds fallacy saving finance and equilibrium the loanable funds controversy cannot be settled without prior agreement on the meanings of income and equilibrium the essential claim of loanable funds theory is that disequilibrium in the goods market affects the rate of interest this paper introduces financial accounting concepts and a new understanding of the principle of effective demand to clarify that loanable funds theory relies on a concept of income other than current income namely yesterday s income in the case of robertson or full employment equilibrium income in the case of hicks in robertson s case this is a matter of bad accounting a confusion between an income statement and a balance sheet in hicks s more subtle case it is about the inapplicability of walras law to a monetary economy keynes s principle embodies a marshallian concept of system equilibrium under which the goods market is treated as never in disequilibrium in the sense required by loanable funds theory copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

iylm a general theory compatible replacement for islm the islm model introduced in 1936 37 to provide interpretations of keynes s general theory subsequently emerged in its hicks hansen form as the workhorse and trained intuition of post war macroeconomists however islm is an essentially orthodox model based on neoclassical foundations and fails completely as an adequate representation of central elements of keynes s macroeconomic thought this article proposes iylm as a replacement for islm the new model being general theory compatible in that it is grounded only on key propositions in that work its purpose is to contribute within the constraints of a two market framework to the resuscitation of keynes s macroeconomics as an alternative to the inadequacies of much current macroeconomics the first part of the article derives the model and argues that those sympathetic to the general theory can accept the iylm framework whilst simultaneously rejecting islm the second part shows that hicks hansen islm is based on an income augmented form of orthodox loanable funds theory

a note on kuhn s theorem with ambiguity averse players kuhn s theorem shows that extensive games with perfect recall can equivalently be analyzed using mixed or behavioral strategies as long as players are expected utility maximizers this note constructs an example that illustrates the limits of kuhn s theorem in an environment with ambiguity averse players who use a maxmin decision rule and full bayesian updating

money interest and capital a study in the foundations of monetary theory list of illustrations list of tables series preface preface 1 real analysis and monetary analysis an introduction part i real analysis critique 2 wicksellian monetary theory 3 neo walrasian monetary theory 4 the neoclassical synthesis revisited 5 keynesian and monetarists 6 friedman s monetary framework the quantity theory restated part ii monetary analysis foundations 7 re laying the foundations of monetary theory 8 some further questions of method and methodology 9 marshallian microfoundations of monetary equilibrium 10 macroeconomic analysis and monetary equilibrium 11 real analysis and monetary analysis the central arguments references index

a new environmental kuznets curve relationship between direct material input and income per capita evidence from industrialised countries abstract many studies have focused on the quantification of the input of materials into the economy however the insights provided by those studies have generally been limited this paper attempts to bring analytical value to the discussion on dematerialization considering direct material input dmi per capita as the dependent variable in a test of the environmental kuznets curve ekc the explanatory variable is as usual gross domestic product per capita the quadratic and cubic versions of the ekc are tested econometrically using panel data ranging from 1960 to 1998 for 16 industrialised countries the results indicate a strong and robust support for both the quadratic and cubic ekc relationships between material input and income in industrialised economies while the statistical support to both types of evolution may seem contradictory it suggests that as industrialised economies grow the intensity of material consumption first increases but eventually starts exhibiting a decreasing trend after a certain income threshold is reached the inverted u or quadratic relationship is confirmed even though for the ranges of income considered in this study the trend is mostly on the increasing part of the inverted u curve however the statistical support to the cubic specification suggests that these results need to be regarded with caution overall the statistically stronger models are the quadratic and cubic models with country random effects and the cubic model with country and year fixed effects

asset commonality debt maturity and systemic risk we develop a model in which asset commonality and short term debt of banks interact to generate excessive systemic risk banks swap assets to diversify their individual risk two asset structures arise in a clustered structure groups of banks hold common asset portfolios and default together in an unclustered structure defaults are more dispersed portfolio quality of individual banks is opaque but can be inferred by creditors from aggregate signals about bank solvency when bank debt is short term creditors do not roll over in response to adverse signals and all banks are ine ciently liquidated this information contagion is more likely under clustered asset structures in contrast when bank debt is long term welfare is the same under both asset structures

transformation of india s transport sector under global warming of 2 c and 1 5 c scenario abstract the paris agreement stresses on concerted efforts to limit global temperature increase to 2 c and make efforts towards achieving 1 5 c temperature stabilization countries announced actions under the nationally determined contributions outlining domestic mitigation actions to achieve the global target understanding the impact of these actions on achieving these ambitions requires an assessment of long term national level scenarios limited studies currently exist that model long term scenarios at national level addressing the impacts of nationally determined contributions and the additional actions required especially at the sectoral level the paper compares four alternate future scenarios for india spanning till 2050 with a specific focus on the passenger and freight transportation the analysis is performed using the answer markal model and complemented with methodologies to estimate transportation demand under strong decarbonisation pathways the results show that 1 5 c scenario would need immediate actions and deep transformations demand side actions would in addition to infrastructure investments require transforming human behaviour through use of information technology internet and sharing economy clean vehicle technologies need to play a much bigger role and fossil fuel dependence would be moderated with the dominance of electricity hydrogen and biofuels the higher share of electricity in transport is complimented with accelerated decarbonisation of electricity this transformation required for 1 5 c scenario calls for innovations that would be driven through national and sectoral policies and explicit carbon prices

liquidity coinsurance moral hazard and financial contagion we study the propagation of financial crises between regions characterized by moral hazard problems the source of the problem is that banks are protected by limited liability and may engage in excessive risk taking the regions are affected by negatively correlated liquidity shocks so that liquidity coinsurance is pareto improving the moral hazard problem can be solved if banks are sufficiently capitalized under autarky a limited investment is needed to achieve optimality so that a limited amount of capital is sufficient to prevent risk taking with interbank deposits the optimal investment increases and capital becomes insufficient to prevent excessive risk taking thus bankruptcy occurs with positive probability and the crises spread to other regions via the financial linkages opening the financial markets is nevertheless pareto improving consumers benefit from liquidity coinsurance although they pay the cost of excessive risk taking finally we show that in this framework a completely connected deposit structure is more conducive to financial crises than an incompletely connected structure

uncertainty aversion and systemic risk we propose a new theory of systemic risk based on knightian uncertainty or ambiguity we show that due to uncertainty aversion beliefs on future asset returns are endogenous and bad news on one asset class induces investors to be more pessimistic about other asset classes as well this means that idiosyncratic risk can create contagion and snowball into systemic risk furthermore in a diamond and dybvig 1983 setting we show that surprisingly uncertainty aversion causes investors to be less prone to run individual banks but runs will be systemic in addition we show that bank runs are associated with stock market crashes and ight to quality finally we argue that increasing uncertainty makes the nancial system more fragile and more prone to crises we conclude with implications for the current public policy debate on the management of nancial crisis

energy policies for low carbon sustainable transport in asia abstract transformation of asia s transport sector has vital implications for climate change sustainable development and energy indicators papers in this special issue show how transport transitions in asia may play out in different socio economic and policy scenarios including a low carbon scenario equivalent to 2 c stabilization accounting for heterogeneity of national transport systems these papers use diverse methods frameworks and models to assess the response of the transport system to environmental policy such as a carbon tax as well as to a cluster of policies aimed at diverse development indicators the analysis shows that co2 mitigation in a transport system is achieved more effectively by aligning mitigation policies with sustainable development policies and measures such as mandates for mode share and choices such as urban design information and communication systems and behavioral measures authors therefore advocate policies that target multiple dividends vis a vis carbon mitigation energy security and local air quality whereas four papers focus on emissions mitigation policies one paper examines challenges to adapt fast growing transport infrastructures to future climate change induced risks collectively the papers exemplify a set of policies and measures that can deliver co benefits and also demonstrate the use of methods frameworks and models to delineate the optimal mix of such policies and measures

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

financial entanglement a theory of incomplete integration leverage crashes and contagion abstract we propose a unified model of limited market integration asset price determination leveraging and contagion investors and firms are located on a circle and access to markets involves participation costs that increase with distance due to a complementarity between participation and leverage decisions the equilibrium may exhibit diverse leverage and participation choices across investors although investors are ex ante identical small changes in market access costs can cause a change in the type of equilibrium leading to discontinuous price changes deleveraging and portfolio flow reversals moreover the market is subject to contagion an adverse shock to investors in some locations affects prices everywhere jel d83 g11 g12 g32 g35

ambiguity and nonparticipation the role of regulation we investigate the implications of ambiguity aversion for performance and regulation of markets in our model agents decision making may incorporate both risk and ambiguity and we demonstrate that nonparticipation arises from the rational decision by some traders to avoid ambiguity in equilibrium these participation decisions affect the equilibrium risk premium and distort market performance when viewed from the perspective of traditional asset pricing models we demonstrate how regulation particularly regulation of unlikely events can moderate the effects of ambiguity thereby increasing participation and generating welfare gains our analysis demonstrates how legal systems affect participation in financial markets through their influence on ambiguity the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

low carbon scenarios for transport in india co benefits analysis abstract dependence on oil for transport is a concern for india s policymakers on three counts energy security local environment and climate change rapid urbanisation and accompanying motorisation has created some of the most polluting cities in india and rising demand for oil is leading to higher imports besides causing more co 2 emissions the government of india wants to achieve the climate goals through a sustainability approach that simultaneously addresses other environment and developmental challenges this paper analyses a sustainable low carbon transport slct scenario based on sustainable strategies for passenger and freight mobility vehicle technologies and fuel using global co 2 prices that correspond to 2 c global stabilisation target the scenarios span from years 2010 to 2050 and are analysed using the energy system model answer markal the slct scenario has improved energy security cumulative oil demand lower by 3100 mtoe improved air quality pm 2 5 emissions never exceed the existing levels and the cumulative co 2 emissions are lower by 13 billion t co 2 thereby showing that achieving development objectives with co 2 co benefits is feasible