EconPapers    
Economics at your fingertips  
 

Inside and Outside Liquidity, vol 1

Bengt Holmstrom () and Jean Tirole

in MIT Press Books from The MIT Press

Abstract: Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions drawing on insights from modern corporate finance. In a slight, but important departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions. In an epilogue, Holmström and Tirole show how their theory can be used to understand some aspects of the recent financial crisis.

Keywords: finance; macroeconomics; liquidity; financial crisis (search for similar items in EconPapers)
JEL-codes: G0 E0 (search for similar items in EconPapers)
Date: 2011
Edition: 1
ISBN: 0-262-01578-1
References: Add references at CitEc
Citations View citations in EconPapers (120) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Book: Inside and Outside Liquidity (2013)
Book: Inside and Outside Liquidity (2011)
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:mtp:titles:0262015781

Access Statistics for this book

More books in MIT Press Books from The MIT Press
Series data maintained by Kristin Waites ().

 
Page updated 2017-10-19
Handle: RePEc:mtp:titles:0262015781