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Sudden Spikes in Global Risk

Sudden Spikes in Global Risk. Written by Bacchetta & van Wincoop Presented by Seth Leonard Discussed by João Cunha. Summary. Risk Panic Disconnect from Macro Fundamentals Two country OLG static model with closed-form analytical solution Self-fulfilling. Summary. Very tractable

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Sudden Spikes in Global Risk

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  1. Sudden Spikes in Global Risk Written by Bacchetta & van Wincoop Presented by Seth Leonard Discussed by João Cunha

  2. Summary • Risk Panic • Disconnect from Macro Fundamentals • Two country OLG static model with closed-form analytical solution • Self-fulfilling

  3. Summary • Very tractable • Multiple Equilibria • Contribution to the Risk Panics literature

  4. Extensions • OLG structure • Constant interest rate on bonds • Booms\Bubble • Triggers of (Global) Risk Panics

  5. Alternative Arguments • Credit Crunch • Reduction of Leveraged Positions • Losses in the Financial Markets • Expectations

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