A Financial Accelerator through Coordination Failure

Oliver de Groot

The Economic Journal, 2021, vol. 131, issue 636, 1620-1642

Abstract: This article studies the effect of liquidity crises in short-term debt markets in a dynamic general equilibrium framework. Creditors (retail banks) receive imperfect signals regarding the profitability of borrowers (wholesale banks) and, based on these signals and their beliefs about other creditors’ actions, choose whether to roll over funding, or not. The unco-ordinated actions of creditors cause a suboptimal incidence of rollover, generating an illiquidity premium. Leverage magnifies this co-ordination inefficiency. Illiquidity shocks in credit markets result in sharp contractions in output. Policy responses are analysed.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/ej/ueaa080 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:131:y:2021:i:636:p:1620-1642.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Economic Journal is currently edited by Francesco Lippi

More articles in The Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press () and ().