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This paper studies the welfare properties of competitive equilibria in an economy with incomplete markets subject to idiosyncratic and aggregate shocks. We focus on the role of securitization, whereby borrowers can reduce idiosyncratic asset risk, which enables increased leverage and investment....
Persistent link: https://www.econbiz.de/10012010374
We present a theoretical framework to characterize how financial market participants contribute to systemic risk, allowing us to derive optimal corrective policy interventions. To that end, we embed belief heterogeneity in a model of frictional financial markets. We document the asymmetry that,...
Persistent link: https://www.econbiz.de/10014303139
-and-repurchase (repo) contracts. Exemption from an automatic stay in bankruptcy enables financial intermediaries to raise greater liquidity … and induces entry of intermediaries with higher leverage during normal times. This liquidity creation occurs, however, at …
Persistent link: https://www.econbiz.de/10014468227
This paper examines credit market policies under pecuniary externalities induced by collateral constraints. Pigouvian … policies can improve on constrained efficiency and that inefficiencies due to financial externalities can most effectively be …
Persistent link: https://www.econbiz.de/10012594950
externalities induced by a collateral constraint. Limiting the loan-to-value ratio benefits only few unconstrained borrowers and …
Persistent link: https://www.econbiz.de/10012818408
We investigate the channel through which fluctuations in the market liquidity of real-sector repo collateral cause … productive capital as repo collateral to fund the margin for their arbitrage positions. A tiny drop in the market liquidity of …), and can easily incur a simultaneous repo run and arbitrage crashes, where liquidity in several markets dry up altogether …
Persistent link: https://www.econbiz.de/10011875637
persistence of liquidity shocks. Following a theory of long-term interbank funding a financial system which is modeled as a micro … policy and therefore ultimately the real economy. In particular, it facilitates banks' liquidity management. This paper aims … at extending the literature which views interbank markets as mutual liquidity insurance mechanism by taking into account …
Persistent link: https://www.econbiz.de/10011434764
idiosyncratic shocks, imposing negative externalities on unrelated firms in CLO portfolios. Following a negative shock to the oil … securities of unrelated firms, creating market dislocations. The erosion in the liquidity positions of exposed firms spills over …
Persistent link: https://www.econbiz.de/10014230330
explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated … containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how … market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity …
Persistent link: https://www.econbiz.de/10008732226
In the presence of macroeconomic shocks severe enough to threaten the liquidity or solvency of the banking system, the …
Persistent link: https://www.econbiz.de/10011400865