Research Seminar - Sanjay Singh (University of California, Davis) - The financial origins of non-fundamental risk

Co-authors: Sushant Acharya (Bank of Canada) and Keshav Dogra (Federal Reserve Bank of New York)

Abstract: We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate non-fundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the demand for safe assets, through social insurance or by acting as a market maker of last resort.


Online Research seminars organized by the Bank of Finland's Research Unit are open to all researchers interested in the subjects covered. Those wishing to attend a seminar are kindly asked to register in advance, by filling in the Online Registration Form.

The registration for each seminar is open until 9:00 am the day of the seminar. You will receive a link to join the seminar by email at the latest one hour before the seminar is scheduled to begin.