Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154365
Authors: 
Carletti, Elena
Leonello, Agnese
Year of Publication: 
2016
Series/Report no.: 
ECB Working Paper 1932
Abstract: 
We develop a model where banks invest in reserves and loans, and trade loans on the interbank market to deal with liquidity shocks. Two types of equilibria emerge, depending on the degree of credit market competition and the level of aggregate liquidity risk. In one equilibrium, all banks keep enough reserves and remain solvent. In the other, some banks default with positive probability. The latter equilibrium exists when competition is not too intense and high liquidity shocks are not too likely. The model delivers several implications concerning the severity of crises and credit availability along the business cycle.
Subjects: 
cash-in-the-market pricing
interbank market
price volatility
systemic crises
JEL: 
G01
G20
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2180-0
Document Type: 
Working Paper

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