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 …

become mutually reinforcing. We compare different policy measures that can mitigate the risk of inefficient liquidity dry …We analyze a novel feedback mechanism between market and funding liquidity that causes self-fulfilling liquidity dry … gain by resorting to outside liquidity sources and withhold assets from secondary markets. This leads to adverse selectrion …

This paper examines the impact of exogenous liquidity shocks in the unsecured interbank market. We evaluate the effects … of idiosyncratic liquidity shocks - arising from deposits outflow at the bank level - and of the aggregate liquidity … shock related to the U.S. tapering observed between May and September of 2013. We find that both liquidity shocks are …

risk. This rebalancing creates predictable demand for liquidity. We also apply the strategy to a group of commodities not … correlate positively to calendar spread liquidity and constraints on intermediation capital. The strategy delivers low …

liquidity is modeled as a stochastic quantity impact from trading on the price. Bubbles are larger in liquid markets and when … trading constraints are more binding. Systemic risk is defined as an unanticipated shock that results in the nonexistence of … an equilibrium in the economy. A realization of systemic risk results in a significant loss of wealth. Systemic risk …

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 …

, value and risk of the market. Despite our behavioral framework, the model’s fundamental steady state is characterized by … standard present-value relations between expected future payouts and the model-implied risk-adjusted return. We derive … that the asset market may display spontaneous, sharp and permanent downturns if investors react sensitively to risk, an …

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge … against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices … may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes …