A Tale of Fire Sales and Liquidity Hoarding
Project funded by own resources
Project title A Tale of Fire Sales and Liquidity Hoarding
Principal Investigator(s) Berentsen, Aleksander
Project Members Müller, Benjamin
Organisation / Research unit Departement Wirtschaftswissenschaften / Wirtschaftstheorie (Berentsen)
Project Website https://ideas.repec.org/p/zur/econwp/139.html
Project start 01.01.2012
Probable end 31.12.2027
Status Active

We extend the analysis of the interbank market model of Gale and Yorulmazer (2013) by studying a larger set of trading mechanisms. A trading mechanism, which allows for randomized trading, restores efficiency. In contrast to Gale and Yorulmazer, we find that fire-sale asset prices are efficient and that no liquidity hoarding occurs in equilibrium. While Gale and Yorulmazer find that the market provides insufficient liquidity, we find that it provides too much liquidity.

Financed by University funds

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