Arbeitspapier
Rollover risk, liquidity, and macro-prudential regulation
I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex-ante and are subject to fire sales ex-post. I demonstrate that precautionary liquidity restores multiple equilibria in a global rollover game. An intermediate liquidity level supports both the usual run equilibrium and an efficient equilibrium. I provide a uniqueness refinement to characterize the privately optimal liquidity choice. Because of fire sales, liquidity holdings are strategic substitutes. Intermediaries free-ride on the liquidity of other intermediaries, causing excessive liquidation. A macro-prudential authority internalizes the systemic nature of liquidity and restores constrained efficiency by imposing a macro-prudential liquidity buffer.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 1667
- Classification
-
Wirtschaft
Financial Crises
Portfolio Choice; Investment Decisions
Financial Institutions and Services: Government Policy and Regulation
- Subject
-
global games
multiplicity
portfolio choice
wholesale funding
- Event
-
Geistige Schöpfung
- (who)
-
Ahnert, Toni
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
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Frankfurt a. M.
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Ahnert, Toni
- European Central Bank (ECB)
Time of origin
- 2014
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