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Adequate Liquid Provision for a Run Preventing Contract

Author

Listed:
  • JaeJoon Han

    (Inha University)

Abstract

We extend Ross and Cooper (1998) and find an adequate liquidate provision as a function of liquidity cost in CRRA (Constant Relative Risk Aversion) environment. Our study shows that a RPC (run preventing contract) in a MMMF (money market mutual fund) requires a higher amount of liquidity provision when the capital loss becomes greater in a credit crunch period.

Suggested Citation

  • JaeJoon Han, 2011. "Adequate Liquid Provision for a Run Preventing Contract," Economics Bulletin, AccessEcon, vol. 31(4), pages 2986-2995.
    • Handle: RePEc:ebl:ecbull:eb-11-00079
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P271.pdf
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    References listed on IDEAS

    as
    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    2. Cooper, Russell & Ross, Thomas W., 1998. "Bank runs: Liquidity costs and investment distortions," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 27-38, February.
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    More about this item

    Keywords

    liquidation cost; fund run; illiquid investment; liquid investment;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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