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Information insensitivity, collateral flows and the logic of financial stability

Andrea Mantovi ()

No 2019-EP01, Economics Department Working Papers from Department of Economics, Parma University (Italy)

Abstract: The role of collateralization in the dynamics of credit and liquidity provision is the subject of increasing research interest, for instance concerning the global macroeconomic role of safe assets. Still, when it comes to first principles of financial stability, questions of transparency seem to overshadow the relevance of collateralization arrangements and the specificity of networks of counterparties. According to Holmström (2015), the fact that liquidity requires transparency is a misunderstanding. The paper is meant to deepen the connection between the principle of “no questions asked” (NQA) on collateralized debt and the stabilizing properties of collateral flows in an equilibrium selection perspective. Conceptual and empirical implications are thoroughly discussed, and can be conjectured to represent lines of progress for the logic of financial stability, and for the theory of money as well. In a well known formula, money is a substitute for trust (Shubik, 1999); an analogous role for the NQA principle – collateral is a substitute for questions – can be conjectured to deserve comparable relevance.

Keywords: Money; Financial Stability; Information Sensitivity; Market Design; Equilibrium Selection; Political Economy (search for similar items in EconPapers)
JEL-codes: E59 G01 G18 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-mac and nep-mon
Date: 2019
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