Economics of regulation: Credit rationing and excess liquidity

Hyejin Cho

2016 Papers from Job Market Papers

Abstract: In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machinaâs triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the ï¬nancial sector where the imbalance argument comes from credit rationing extended from outside liquidity (Holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exempliï¬es the combination of credit, liquidity and regulation.

JEL-codes: D81 E58 L51 (search for similar items in EconPapers)
Date: 2016-12-24
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