Dynamic Maturity Transforation
AbstractWe develop an infinite horizon equilibrium model in which banks finance long term assets with non-tradable debt. Banks choose the amount of debt and its maturity taking into account investors’ preference for short maturities (which better accommodate their preference shocks) and the risk of systemic liquidity crises (during which refinancing is especially expensive). Unregulated debt maturities are inefficiently short due to pecuniary externalities in the market for funds during crises and their interaction with banks’ refinancing constraints. We show the possibility of improving welfare by means of limits to debt maturity, Pigovian taxes, and private and public liquidity insurance schemes.
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Bibliographic InfoPaper provided by CEMFI in its series Working Papers with number wp2011_1105.
Date of creation: Nov 2011
Date of revision:
Liquidity premium; maturity transformation; systemic crises; liquidity regulation; pecuniary externalities; liquidity insurance.;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
- NEP-BAN-2011-12-19 (Banking)
- NEP-DGE-2011-12-19 (Dynamic General Equilibrium)
- NEP-IAS-2011-12-19 (Insurance Economics)
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