EconPapers    
Economics at your fingertips  
 

Liquidity backstops and dynamic debt runs

Bin Wei and Vivian Yue

No 2015-13, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Liquidity backstops have important implications for financial stability. In this paper, we provide a microfoundation for the important role of liquidity backstops in mitigating runs (or, conversely, the role of the lack of liquidity backstops in exacerbating runs) based on a dynamic model of debt runs. We focus on the municipal bond markets for variable rate demand obligations (VRDOs) and auction rate securities (ARS). The different experiences in these markets during the recent financial crisis of 2007?09 provide a natural experiment to identify the value of a liquidity backstop in mitigating runs. Through structural estimation of the model, we show that the value of a liquidity backstop is about 14.5 basis points per annum. The results in this paper shed light on one central difference between shadow banks and traditional banks in terms of their differential access to public liquidity backstops.

Keywords: liquidity backstop; debt run (search for similar items in EconPapers)
JEL-codes: G10 G20 G21 (search for similar items in EconPapers)
Date: 2015-12-01
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.frbatlanta.org/-/media/Documents/resea ... wp/2015/13.pdf?la=en Full text (application/pdf)

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:fip:fedawp:2015-13

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Elaine Clokey ().

 
Page updated 2020-01-14
Handle: RePEc:fip:fedawp:2015-13