Working Paper
"Opacity: Insurance and Fragility"   R&R at Review of Economic Dynamics
  • presented at Macro Theory Workshop and Micro Theory Workshop at Rutgers University, the Bank of Canada, the Federal Reserve Board, Halle Institute for Economic Research (IWH), Instituto Tecnológico Autónomo de México (ITAM), International University of Japan, Wesleyan University, the Summer Workshop on Economic Theory 2019, the 4th Annual Chapman Conference on Money and Finance, and the 16th Annual Vienna Macroeconomics Workshop.

  • chosen for the "Rookie of the Year" award at the 16th Annual Vienna Macroeconomics Workshop!

"Financial Stability with Sovereign Debt"  R&R at Journal of Financial Stability
  • presented at the ASSA 2018 Annual Meeting (poster), Royal Economics Society PhD Meeting 2017/18, International Monetary Fund, Keio University, Tokyo Metropolitan University, National Taiwan University, Sophia University, Kwansei Gakuin University.

  • covered by OECD - Italian Treasury – World Bank Public Debt Management Network at their website and Bimonthly Newsletter.

"Financial Stability with Fire-Sales" (with Y. Li)
  • presented at the Spring 2018 Midwest Macroeconomics Meetings (UW-Madison), Nankai University, SHUFE, Kwansei Gakuin University, Waseda University.

"Overeducation in the European Labor Markets"
(with H. Miyamoto and I. Shibata)
  • presented at International Monetary Fund

"Regional Integration and Financial Regulation" (with S. Kaji)
Public Policy Review, Vol.12, No.2      
"Regional Integration and Financial Regulatory Reforms" (with S. Kaji)
Financial Review, No.125 (in Japanese)

What are the effects of banks holding opaque, complex assets? Should regulators require bank assets to be more transparent? I study these questions in a model of financial intermediation where opacity determines how long the realized value of an asset remains unknown. By allowing a bank to sell assets before the realization is known, opacity provides insurance to the bank's depositors. However, higher opacity also increases depositors' incentives to join a bank run. In choosing the level of opacity, therefore, a bank faces a trade-off between providing insurance and increasing fragility. If depositors can accurately observe the level of opacity, banks will choose the socially-efficient level. If depositors are unable to observe this choice, however, banks will have an incentive to become overly opaque and regulation to limit opacity will improve welfare.

covered by OECD - Italian Treasury – World Bank Public Debt Management Network at their website and Bimonthly Newsletter

Are government guarantees or financial regulation a more effective way to prevent banking crises? I study this question in the presence of a negative feedback loop between the fiscal position of the government and the health of the banking sector. I construct a model of financial intermediation in which the government issues, and may default on, debt. Banks hold some of this debt, which ties their health to that of the government. The government’s tax revenue, in turn, depends on the quantity of investment that banks are able to finance. I compare the effectiveness of government guarantees, liquidity regulation, and a combination of these policies in preventing self-fulfilling bank runs. In some cases, a combination of the two policies is needed to prevent a run. In other cases, liquidity regulation alone is effective and adding guarantees would make the financial system fragile.

"Financial Stability with Fire-Sales" (with Y. Li)

Do policies that aim to mitigate fire sales actually improve financial stability? We study this question using a modern model of financial intermediation in which banks can sell illiquid assets in financial markets and cash-in-the-market pricing may arise. In the absence of regulation, banks hold fewer liquid assets and finance more illiquid investment than is socially optimal, which leads to inefficiently large fire sales. Liquidity regulation can correct this fire-sale externality. We show, however, that in some cases liquidity regulation also introduces equilibria in which a self-fulfilling bank run is more likely to occur. In such situations, policy makers must balance the desire to correct the fire-sale externality against the increased financial fragility that liquidity regulation may bring.

"Overeducation in the European Labor Markets" (with H. Miyamoto and I. Shibata)

In European countries, a share of overeducated workers, who are more educated than the occupational average, has increased after the Global Financial Crisis. This paper studies demographic    characteristics of workers facing overeducation, consequences of overeducation on workers’ labor market outcome, and labor market policy environment associated with the incidence of overeducation in European countries. We find that overeducated workers are more likely to be female, younger, and unmarried. Overeducated workers tend to suffer lower earnings than their counterparts with the same education level, and this earning loss is persistent. Overeducation does not play a role of a stepping stone to a well matched job. Overeducation is more prevalent in countries with a stricter employment protection legislation (EPL).

"Regional Integration and Financial Regulation" (with S. Kaji), Public Policy Review, Vol. 12, No. 2, 2016

‚ÄčIn the aftermath of the global financial and economic crisis, Europe and the United States are taking the lead in revamping the financial regulatory and supervisory framework. In this paper, we focus on the recent changes in the financial regulatory and supervisory framework in the European Union (EU) where regional integration is most advanced, to draw implications for the rest of the world. The EU established the European Banking Union (EBU) with a single regulatory and supervisory system, necessary from the point of view of macro-prudence. At the same time, the EU is embarking on structural reform of the banking sector, as well as the Capital Markets Union, in order to improve the workings of the EBU and the Single Market. These reforms are making progress through conflict and compromise between member states and the European Institutions. Reform within the framework of regional integration has three advantages. First, when the interests of financial institutions and tax payers collide, democracy can be made to function better if supra-national institutions and national institutions represent the interests of the opposing entities. Second, the existence of many supra-national institutions can maintain the momentum and balance of reform. Third, transfer of sovereign power to a supra-national institution can help the implementation of desirable policy.

© Ryuichiro Izumi