A tale of fire-sales and liquidity hoarding

We extend the analysis of the interbank market model of Gale and Yorulmazer (2013) by studying a larger set of trading mechanisms. A trading mechanism, which allows for randomized trading, restores efficiency. In contrast to Gale and Yorulmazer, we find that fire-sale asset prices are efficient and that no liquidity hoarding occurs in equilibrium. While Gale and Yorulmazer find that the market provides insufficient liquidity, we find that it provides too much liquidity.

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Year of publication:	2014-01
Authors:	Berentsen, Aleksander ; Müller, Benjamin
Institutions:	Institut für Volkswirtschaftslehre, Wirtschaftswissenschaftliche Fakutät
Subject:	Fire-sales \| lotteries \| liquidity hoarding \| interbank markets \| indivisibility

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Extent:	application/pdf
Series:	ECON - Working Papers. - ISSN 1664-7041.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Econ working papers Number 139
Classification:	G12 - Asset Pricing ; G21 - Banks; Other Depository Institutions; Mortgages ; G33 - Bankruptcy; Liquidation ; D83 - Search, Learning, Information and Knowledge
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010817250