Enrico C. Perotti

Quote of the month
"Systemic risk is propagation risk. In a systemic crisis, an initial shock spreads beyond its own market, start a vicious spiral of price shocks and disrupt the real economy. We have learned that liquidity runs are a primary cause of propagation. Banks that suffer rapid withdrawals of short- whosale funding cause rapid fire sales in a panic, forcing others in fire sales, and propagating the shock. Accordingly, we propose to introduce liquidity risk charges as a macro prudential policy tool. Taxing short uninsured term funding is aimed at making banks internalize the negative systemic effects of fragile funding strategies. A macro prudential authority can manage the charges to prevent excess build up of liquity risk during good times. "
Liquidity Risk Charges as a Macroprudential Tool

Quote of last month
"Novel early stage ideas face uncertainty on the expertise needed to elaborate them, which creates a need to circulate them widely to find a match. Yet as information is not excludable, shared ideas may be stolen, reducing incentives to innovate. Still, in idea-rich environments inventors may share them without contractual protection."
The Circulation of Ideas in Firms and Markets