Template-type: ReDIF-Paper 1.0
Author-Name: Aleksander Berentsen
Author-Name-First: Aleksander
Author-Name-Last: Berentsen
Author-Person: pbe22
Author-Name: Dr. Benjamin Müller
Author-Name-First: Benjamin
Author-Name-Last: Müller
Author-Person: pml37
Title: A Tale of Fire-Sales and Liquidity Hoarding
Abstract: We extend the analysis of the theoretical interbank market model of Gale and Yorulmazer (2013) by introducing randomized trading (lotteries). In contrast to Gale and Yorulmazer, we find that fire-sale asset prices are efficient and that no liquidity hoarding occurs in equilibrium with lotteries. While Gale and Yorulmazer find that the market provides insufficient liquidity, we find that it provides too much liquidity when introducing lotteries. We also show how to decentralize the efficient lottery mechanism.
Length: 35 pages
Creation-Date: 2017
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2017/working_paper_2017_16
File-Format: text/html
Number: 2017-16
Classification-JEL: G12, G21, G33
Keywords: Fire-sales, lotteries, liquidity hoarding, interbank markets, indivisibility
Handle: RePEc:snb:snbwpa:2017-16