leveraged buy-outs or other transactions substituting debt for equity capitalization now exceeds their risk-adjusted capital …

little credit risk. The borrowing in this model takes the form of a repurchase agreement ("repo") or asset-backed commercial …" (the information state gets worse), or "no news" (the information state remains the same). When rollover risk is high … during the crisis for asset-backed securities with low credit risk once bad news about the underlying cash flows arrived …

Financial assets provide return and liquidity services to their holders. However, during severe financial crises many … asset prices plummet, destroying their liquidity provision function at the worst possible time. In this paper we present a … not control or understand. The liquidity of the market quickly vanishes and a financial crisis ensues. The model exhibits …

worsen, debt induces firms to risk-shift; this limits their funding liquidity and their ability to roll over debt. Firms may … drying up of liquidity. Financial firms raise short-term debt in order to finance asset purchases. When asset fundamentals … de-lever by selling assets to better-capitalized firms. Thus the market liquidity of assets depends on the severity of …

The paper presents a model of a monetary economy where there are differences in liquidity across assets. Money … on assets, reflecting their differences in liquidity. The model is used, first, to investigate how aggregate activity and … asset prices fluctuate with shocks to productivity and liquidity; second, to examine what role government policy might have …

This paper studies a model where money is valued for the liquidity services it provides in the future. These liquidity … services cannot be provided by any other asset. Changes in expectations of the value of future liquidity services affect the …. I find that changes in dividend risk have effects opposite to those in standard dynamic portfolio models without money …

anomalous. The theory also exhibits rational expectations equilibria with recurring belief driven events that resemble liquidity … prices and standard measures of financial liquidity, such as bid-ask spreads, trade volume, and the incentives of dealers to …. The theory predicts that asset prices carry a speculative premium that reflects the asset's marketability and depends on …

I describe two amplifications mechanisms that operate during liquidity crises and discuss the scope for central bank … disengage from markets and increase their demand for liquidity. This behavior leads to a loss of liquidity and a crisis …

allows banks in different regions to smooth local liquidity shocks by borrowing and lending on a world interbank market. We … show under which conditions financial integration induces banks to reduce their liquidity holdings and to shift their … portfolios towards more profitable but less liquid investments. Integration helps reallocate liquidity when different banks are …