A tale of fire-sales and liquidity hoarding

Aleksander Berentsen and Benjamin Müller

No 139, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We extend the analysis of the interbank market model of Gale and Yorulmazer (2013) by introducing randomized trading (lotteries). 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. We also show how to decentralize the efficient lottery mechanism.

Keywords: Fire-sales; lotteries; liquidity hoarding; interbank markets; indivisibility (search for similar items in EconPapers)
JEL-codes: G12 G21 G33 (search for similar items in EconPapers)
Date: 2014-01, Revised 2015-06
New Economics Papers: this item is included in nep-ban, nep-mst and nep-sog
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Related works:
Working Paper: A Tale of Fire-Sales and Liquidity Hoarding (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:139

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