Credit Market Competition and Liquidity Crises

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Show simple item record CARLETTI, Elena LEONELLO, Agnese 2012-04-20T10:40:23Z 2012-04-20T10:40:23Z 2012
dc.identifier.issn 1725-6704
dc.description.abstract We develop a two-period model where banks invest in reserves and loans, and are subject to aggregate liquidity shocks. When banks face a a shortage of liquidity, they can sell loans on the interbank market. Two types of equilibria emerge. In the no default equilibrium, banks keep enough reserves and remain solvent. In the mixed equilibrium, some banks default with positive probability. The former equilibrium exists when credit market competition is intense, while the latter emerges when banks exercise market power. Thus, competition is beneficial to financial stability. The effect of default on welfare depends on the exogenous risk of the economy as represented by the probability of the good state of nature. en
dc.format.mimetype application/pdf
dc.language.iso en en
dc.relation.ispartofseries EUI ECO en
dc.relation.ispartofseries 2012/14 en
dc.rights info:eu-repo/semantics/openAccess
dc.subject Interbank market en
dc.subject default en
dc.subject price volatility en
dc.subject G01 en
dc.subject G21 en
dc.title Credit Market Competition and Liquidity Crises en
dc.type Working Paper en
dc.neeo.contributor CARLETTI|Elena|aut|EUI70001
dc.neeo.contributor LEONELLO|Agnese|aut|
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