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We study an economy subject to recurrent disasters when agents have imprecise information about the frequency and duration of the disasters. Uncertainty about the persistence of states can lead to seemingly pessimistic behavior in bad times and optimistic behavior in good times. In a disaster,...
Persistent link: https://www.econbiz.de/10014247988
We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a form of monitored liquidity insurance. Bank monitoring and resulting credit line revocations help control illiquidity-seeking behavior by firms. Firms with high liquidity risk...
Persistent link: https://www.econbiz.de/10012459769
We model the opacity of over-the-counter (OTC) markets in a setup where agents share risks, but have incentives to default and their financial positions are not mutually observable. We show that this setup results in excess "leverage" in that parties take on short OTC positions that lead to...
Persistent link: https://www.econbiz.de/10012461658