Fire Sales in Finance and Macroeconomics

Andrei Shleifer and Robert Vishny

No 16642, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Fire sales are forced sales of assets in which high-valuation bidders are sidelined, typically due to debt overhang problems afflicting many specialist bidders simultaneously. We overview theoretical and empirical research on asset fire sales, which shows how they can arise, how they can lead to asset under-valuations, how contracts and bankruptcy regimes adjust to the risk of fire sales, how fire sales can lead to downward spirals or cascades in asset prices, how arbitrage fails in the presence of fire sales, and how fire sales can reduce productive investment. We conclude by showing how asset fire sales shed light on several aspects of the recent financial crisis, and can account for the success of the liquidity provision and asset purchase policies of the Federal Reserve.

JEL-codes: E44 E51 G01 G21 G32 G33 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-bec and nep-mac
Note: CF EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.

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Related works:
Journal Article: Fire Sales in Finance and Macroeconomics (2011)
Working Paper: Fire Sales in Finance and Macroeconomics (2011)
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