Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150193
Authors: 
Gale, Douglas
Yorulmazer, Tanju
Year of Publication: 
2013
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 8 [Year:] 2013 [Issue:] 2 [Pages:] 291-324
Abstract: 
Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in exchange for cash. We characterize the constrained efficient allocation as the solution to a planner's problem and show that the market equilibrium is constrained inefficient, with too little liquidity and inefficient hoarding. Our model features a precautionary as well as a speculative motive for hoarding liquidity, but the inefficiency of liquidity provision can be traced to the incompleteness of markets (due to private information) and the increased price volatility that results from trading assets for cash.
Subjects: 
Interbank market
fire sale
market freeze
cash-in-the-market pricing
JEL: 
G12
G21
G24
G32
G33
D8
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Article

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