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How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when...
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’ funding structures jointly with that in their excess liquidity holdings. We find evidence that banks highly exposed to the …, importantly, the explicit consideration of the role of excess liquidity in our analysis. …
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We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of … assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets. …
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