Liquidity and Ambiguity: Banks or Asset Markets?
Jürgen Eichberger and
Willy Spanjers ()
Additional contact information
Willy Spanjers: Kingston University, School of Economics
No 444, Working Papers from University of Heidelberg, Department of Economics
We study the impact of ambiguity on two alternative institutions of financial intermediation in an economy where consumers face uncertain liquidity needs. The ambiguity the consumers experience is modeled by the degree of confidence in their additive beliefs. We analyze the optimal liquidity allocation and two institutional settings for implementing this allocation: a secondary asset market and a bank deposit contract. For full confidence we obtain the well-known result that consumers prefer the bank deposit contract over the asset market, since the former can provide the optimal cross subsidy for consumers with high liquidity needs. With increasing ambiguity this preference will be reversed: the asset market is preferred, since it avoids inefficient liquidation if the bank reserve holdings turn out to be suboptimal.
Keywords: Financial institutions; Liquidity; Ambiguity; Choquet Expected Utility. (search for similar items in EconPapers)
JEL-codes: D8 G1 G2 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2007-06, Revised 2007-06
New Economics Papers: this item is included in nep-ban and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Liquidity and Ambiguity: Banks or Asset Markets? (2007)
Working Paper: Liquidity and Ambiguity: Banks or Asset Markets? (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:awi:wpaper:0444
Access Statistics for this paper
More papers in Working Papers from University of Heidelberg, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Gabi Rauscher ( this e-mail address is bad, please contact ).