Liquidity Risk and Financial Competition: Implications on Asset Prices and Monetary Policy

Edgar Ghossoub
Additional contact information
Edgar Ghossoub: The University of Texas at San Antonio

No 3, Working Papers from College of Business, University of Texas at San Antonio

Abstract: Recent events in financial markets have led to a substantial decline in the number of financial institutions, which may affect the extent of financial competition. What are the implications of such outcome on the degree of risk sharing, asset markets, and monetary policy? In order to answer these questions, I develop a two-sector monetary growth in which money and financial institutions play important roles. Compared to a perfectly competitive financial sector, I demonstrate that imperfect competition in deposits and capital markets can have substantial adverse consequences on capital formation, assets prices, and the degree of risk sharing. More importantly, market power in financial markets may overturn the Tobin effect present under a perfectly competitive financial sector. This necessarily happens in economies with high degrees of liquidity risk and low levels of capital formation.

Keywords: Financial Competition; Monetary Policy; Financial Intermediation; Liquidity Risk (search for similar items in EconPapers)
JEL-codes: D42 E52 G21 O42 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://interim.business.utsa.edu/wps/eco/0003ECO-566-2010.pdf Full text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

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:tsa:wpaper:0013eco

Access Statistics for this paper

More papers in Working Papers from College of Business, University of Texas at San Antonio Contact information at EDIRC.
Bibliographic data for series maintained by Wendy Frost ().