Safe Assets’ Scarcity, Liquidity and Spreads
Gabriella Chiesa ()
Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna
This paper constructs a simple general equilibrium model to analyse the interactions between the financial and the real sector in an environment where liquidity holdings is an input of the credit/investment process. The supply of liquidity is constrained in that income pledgeability limits inside liquidity, and not all sovereign debt is safe/liquid. We pin down the determinants of liquidity/collateral premia and bond spreads, and with reference to the eurozone: (i) the implications of the ECB’s policies on liquidity provision and credit, and (ii) the debt management policy that would increase welfare with no need for transfer payments.
JEL-codes: E44 H63 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp927
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