Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154100
Authors: 
Ahnert, Toni
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1667
Abstract: 
I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex-ante and are subject to fire sales ex-post. I demonstrate that precautionary liquidity restores multiple equilibria in a global rollover game. An intermediate liquidity level supports both the usual run equilibrium and an efficient equilibrium. I provide a uniqueness refinement to characterize the privately optimal liquidity choice. Because of fire sales, liquidity holdings are strategic substitutes. Intermediaries free-ride on the liquidity of other intermediaries, causing excessive liquidation. A macro-prudential authority internalizes the systemic nature of liquidity and restores constrained efficiency by imposing a macro-prudential liquidity buffer.
Subjects: 
global games
multiplicity
portfolio choice
wholesale funding
JEL: 
G01
G11
G28
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.