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Interdependence of Liquidity Problems in the Financial Sector The paper analyses problems arising from the interdependence of liquidity provision in the financial system. Findings document, that liquidity shortage of minor financial players can translate into liquidity shortage for systemic relevant players, thereby putting the proper functioning of the overall financial system on the line. As contractual mechanisms to safeguard against this threat are absent in the wake of market frictions, prudent regulation and governmental provision of external liquidity is asked for in order to solve these problems

  • Sebastian Missio
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    File URL: http://www.bgpe.de/texte/DP/103_Missio.pdf
    File Function: First version, 2011
    Download Restriction: no

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 103.

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    Length: 36 pages
    Date of creation: Jul 2011
    Date of revision:
    Handle: RePEc:bav:wpaper:103_missio
    Contact details of provider: Web page: http://www.bgpe.de/

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    1. Franklin Allen & Douglas Gale, 2005. "From Cash-in-the-Market Pricing to Financial Fragility," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 535-546, 04/05.
    2. Efraim Benmelech & Nittai K. Bergman, 2012. "Credit Traps," American Economic Review, American Economic Association, vol. 102(6), pages 3004-32, October.
    3. Tirole, Jean, 2009. "Illiquidity and All Its Friends," TSE Working Papers 09-083, Toulouse School of Economics (TSE), revised Feb 2010.
    4. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
    5. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
    6. Ricardo Caballero & Arvind Krishnamurthy, 2000. "International and Domestic Collateral Constraints in a Model of Emerging Market Crises," NBER Working Papers 7971, National Bureau of Economic Research, Inc.
    7. Douglas W Diamond, 2010. "Fear of fire sales and the credit freeze," BIS Working Papers 305, Bank for International Settlements.
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