Three essays on liquidity risk
Title: Three essays on liquidity risk
Author: CLAEYS, Grégory
Citation: Florence : European University Institute, 2015
Series/Number: EUI PhD theses; Department of Economics
Liquidity risk is inherent to the very nature of the banking activity which is to transform short term liabilities into long term assets. That is why liquidity crises are in one way or another implied in most financial crisis episodes. This thesis contributes to the understanding of how liquidity risk and liquidity crises in the banking and financial sector affect the allocation of resources and the functioning of the economy. It also discusses what could be the best institutional arrangements to share liquidity risk across agents and the best economic policies to avoid liquidity crises. It consists of three chapters focusing on diverse aspects of this topic. The first chapter, co-authored with Katerina-Chara Papioti, provides a new way to measure liquidity risk in the financial sector using the bidding behavior of banks in the bond auctions conducted by central banks. The second chapter examines risk-sharing between agents prone to liquidity shocks obtained through generational and intergenerational coalitions and asset trading in overlapping generation economies. Various institutional arrangements including financial intermediaries, stock markets and government interventions are studied in order to compare their risk sharing performance and optimality. The third chapter examines the international dimension of the liquidity issue and studies theoretically what combination of exchange rate regime and central bank policy is less vulnerable to a combined currency and banking crisis focusing on the sudden stop of capital flows as an underlying source of instability.
Defence date: 22 April 2015; Examining Board: Prof. Elena Carletti, EUI & Bocconi University, Supervisor; Prof. Andrea Mattozzi, EUI; Prof. Bruno Maria Parigi, University of Padoa; Prof. Philippe Weil, Université Libre de Bruxelles.
Type of Access: openAccess