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Lemons and Money Market?

Author

Listed:
  • Christian EWERHART

    (University of Zurich)

  • Patricia FEUBLI

    (University of Zurich)

Abstract

This paper identifies simple conditions for monotone compara- tive statics of a unique equilibrium in the Akerlof-Wilson model. Separate conditions apply to trade volume and price. Trade volume increases when supply becomes both stronger and more elastic. In contrast, price decreases when supply becomes both stronger and less elastic. An application to the interbank market suggests surprisingly specific measures to address elevated term rates and market breakdown.

Suggested Citation

  • Christian EWERHART & Patricia FEUBLI, "undated". "Lemons and Money Market?," Swiss Finance Institute Research Paper Series 10-04, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1004
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    Keywords

    Adverse selection; uniqueness of equilibrium; monotone com- parative statics; elasticity of supply; log-supermodularity; log-concavity; in- terbank markets;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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