RESEARCH STATEMENT and FUTURE RESEARCH INTERESTS

• Research Summary

• Future Research Interests

WORKING PAPERS

“Partial Deposit Insurance and Moral Hazard in Banking System,” with Li Gan. February 2008 [PDF file]

Abstract: Recent FDIC reform in the US raises the coverage limit for certain deposits. This paper studies the optimal coverage limit in a model of deposit insurance of the banking system with capital requirements and risk sensitive premia. Because of the coverage limit, depositors have incentives to do part of the monitoring of the bank’s risk-taking behavior, threatening banks with the withdrawal of deposits if necessary. The model includes a risk-taking bank, heterogeneous depositors, and a benevolent insurance company providing deposit insurance. We find that partial coverage combined with risk-sensitive premia in the presence of capital requirements can improve social welfare. Moreover, when the partial coverage limit is in place, banks are better off, balancing by exchanging the higher deposit premia against the depositor’s monitoring and potential withdrawals.

“Financial Fragility and Exchange Rate Regimes in a Small Open Economy,” with Paula L. Hernandez-Verme.

February 2007 [PDF file]

Abstract: We build a dynamic general equilibrium model of a small, open economy that displays nontrivial demands for fiat currencies, unexpected sunspots, and financial/banking crises originated by sudden stops of foreign capital inflows. The goal is evaluating the performance of alternative exchange rate regimes and associated monetary policies. We show the existence of multiple equilibria that we may rank based on the presence of binding information constraints and on welfare. Moreover, we can show that there is a strong association between the scope for existence and for indeterminacy of equilibria and the underlying policy regime. We also find that the presence of binding multiple reserve requirements may help in reducing the scope for financial fragility and panic equilibria.