Bubbles, Banks, and Financial Stability

This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2) When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by ordinary savers have relatively muted effects. Banks tend to invest in bubbles when financial liberalisation decreases their profitability.

Central Bank's Two-Way Communication with the Public and Inflation Dynamics

Using a model of island economy where financial markets aggregate dispersed information of the public, we analyze how two-way communication between the central bank and the public affects inflation dynamics. When inflation target is observable and credible to the public, markets provide the bank with information about the aggregate state of the economy, and hence the bank can stabilize inflation. However, when inflation target is unobservable or less credible, the public updates their perceived inflation target and the information revealed from markets to the bank becomes less perfect. The degree of uncertainty facing the bank crucially depends on how two-way communication works.Monetary policy, central bank communication, inflation target

Adjusting to Capital Account Liberalization

We study theoretically how the adjustment to liberalization of international financial transaction depends upon the degree of domestic financial development. Using a model with domestic and international borrowing constraints, we show that, when the domestic financial system is underdeveloped, capital account liberalization is not necessarily beneficial because TFP stagnates in the long-run or employment decreases in the short-run. Government policy, including allowing foreign direct investment, can mitigate the possible loss of employment, but cannot eliminate it unless the domestic financial system is improved.credit frictions, capital account liberalization

Houses as collateral: has the link between house prices and consumption in the U.K. changed?

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary TransmissionHousing - Finance ; Housing - Great Britain ; Consumption (Economics) - Great Britain

House prices, consumption, and monetary policy: a financial accelerator approach

We consider a general equilibrium model where asymmetric information problems create frictions in credit markets used by households. In our economy, houses serve as collateral to lower the agency costs related to borrowing. We show that this amplifies the effect of monetary policy shocks on housing investment, house prices and consumption. We consider the effect of a structural change in credit markets that lowers the transaction costs of additional borrowing against housing equity. We show that such a change would increase the effect of monetary policy shocks on consumption, but would decrease the effect on house prices and housing investment.house prices, credit frictions, monetary policy, financial accelerator, consumption

Bubbles, Banks, and Financial Stability

This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2)When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by ordinary savers have relatively muted effects. Banks tend to invest in bubbles when financial liberalisation decreases their profitability.Rational bubbles, Financial Frictions, Financial Stability

A supersolutions perspective on hypercontractivity

The purpose of this article is to expose an algebraic closure property of supersolutions to certain diffusion equations. This closure property quickly gives rise to a monotone quantity which generates a hypercontractivity inequality. Our abstract argument applies to a general Markov semigroup whose generator is a diffusion and satisfies a curvature condition.Comment: 7 page

Effect of wing mass in free flight of a two-dimensional symmetric flapping wing-body model

The effect of wing mass in the free flight of a flapping wing is investigated by numerical simulations based on an immersed boundary-lattice Boltzmann method. We consider a model consisting of two-dimensional symmetric flapping wings with uniform mass density connected by a body represented as a point mass. We simulate free flights of the two-dimensional symmetric flapping wing with various mass ratios of the wings to the body. In free flights without gravity, it is found that the time-averaged lift force becomes smaller as the mass ratio increases, since with a large mass ratio the body experiences a large vertical oscillation in one period and consequently the wing-tip speed relatively decreases. We define the effective Reynolds number Reeff taking the body motion into consideration and investigate the critical value of Reeff over which the symmetry breaking of flows occurs. As a result, it is found that the critical value is Re-eff similar or equal to 70 independently of the mass ratio. In free flights with gravity, the time-averaged lift force becomes smaller as the mass ratio increases in the same way as free flights without gravity. In addition, the unstable rotational motion around the body is suppressed as the mass ratio increases, since with a large mass ratio the vortices shedding from the wing tip are small and easily decay.ArticleFLUID DYNAMICS RESEARCH.49(5):055504(2017)journal articl

Prospective and retrospective values integrated in frontal cortex drive predictive choice

予測に基づいて行動を選ぶ脳の回路の発見 --2次運動野が担う予測的な行動選択--. 京都大学プレスリリース. 2023-01-30.Animals must flexibly estimate the value of their actions (action-value) to successfully adapt to a changing environment. The brain is thought to estimate action-values from two different sources, namely the action-outcome history (retrospective value) and the knowledge of the environment (prospective value), but how different estimates of action-values are reconciled to make a choice is not well understood. Here we found that as mice learn the state-transition structure of a decision-making task, retrospective and prospective values become jointly encoded in the preparatory activity of neurons in ALM. Suppressing this preparatory activity in expert mice returned their behavior to a naïve state. These results reveal the neural circuit that injects structural knowledge into action selection to promote predictive decision-making