Collateral Restrictions and Liquidity Under-Supply: A Simple Model
Ana Fostel and
John Geanakoplos ()
Additional contact information
John Geanakoplos: Cowles Foundation, Yale University, http://economics.yale.edu/people/john-geanakoplos
No 1468R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
We show that very little is needed to create liquidity under-supply in equilibrium. Credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging markets economies. Finally, when we make the credit constraint endogenous, the inefficiency can be large due to the presence of a multiplier.
Keywords: Liquidity under-supply; Credit constraint; Non-monotonicity; Multiplier; Collateral equilibrium (search for similar items in EconPapers)
JEL-codes: D51 E44 F30 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fin, nep-fmk, nep-mac, nep-mic and nep-mon
Date: 2004-06, Revised 2006-08
Note: CFP 1236.
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Published in Economic Theory (2008), 35: 441-467
Downloads: (external link)
Journal Article: Collateral restrictions and liquidity under-supply: a simple model (2008)
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:cwl:cwldpp:1468r
Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.
Access Statistics for this paper
More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Series data maintained by Matthew Regan ().