IDEAS home Printed from https://ideas.repec.org/p/ess/wpaper/id11147.html
   My bibliography  Save this paper

Fire-Sale Externalities

Author

Listed:
  • Eduardo Dávila
  • Anton Korinek

Abstract

This paper characterizes the efficiency properties of competitive economies with financial constraints and fire sales. It shows that two distinct pecuniary externalities occur in such settings: distributive externalities that arise from incomplete insurance markets and can take any sign; and collateral externalities that arise from price-dependent financial constraints and are conducive to over-borrowing. For both types of externalities, it identifies three sufficient statistics that determine optimal taxes on financing and investment decisions to implement constrained efficient allocations. It illustrates how to employ our framework in a number of applications. It highlights how small changes in parameters may cause the sufficient statistics that drive distributive externalities to flip sign, either leading to under- or over-borrowing. It also shows that financial amplification is neither necessary nor sufficient to generate inefficient fire-sale externalities. [Working Paper 22444]

Suggested Citation

  • Eduardo Dávila & Anton Korinek, 2016. "Fire-Sale Externalities," Working Papers id:11147, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:11147
    Note: Institutional Papers
    as

    Download full text from publisher

    File URL: http://www.esocialsciences.org/Articles/show_Article.aspx?acat=InstitutionalPapers&aid=11147
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adrian, Tobias & Duarte, Fernando & Grinberg, Federico & Mancini-Griffoli, Tommaso, 2018. "Monetary Policy and Financial Conditions: A Cross-Country Study," CEPR Discussion Papers 12681, C.E.P.R. Discussion Papers.
    2. Anton Korinek, 2017. "Currency wars or efficient spillovers?," BIS Working Papers 615, Bank for International Settlements.
    3. Anton Korinek, 2016. "Currency Wars or Efficient Spillovers? A General Theory of International Policy Cooperation," NBER Working Papers 23004, National Bureau of Economic Research, Inc.
    4. Gersbach, Hans & Rochet, Jean-Charles, 2017. "Capital regulation and credit fluctuations," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 113-124.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ess:wpaper:id:11147. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Padma Prakash (email available below). General contact details of provider: http://www.esocialsciences.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.