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Economics Of Regulation: Credit Rationing And Excess Liquidity

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  • Hyejin Cho

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machina's triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the financial sector where the imbalance argument comes from credit rationing extended from outside liquidity (Holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exemplifies the combination of credit, liquidity and regulation.

Suggested Citation

  • Hyejin Cho, 2017. "Economics Of Regulation: Credit Rationing And Excess Liquidity," Post-Print hal-01375423, HAL.
    • Handle: RePEc:hal:journl:hal-01375423
    Note: View the original document on HAL open archive server: https://hal.science/hal-01375423v2
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    References listed on IDEAS

    as
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    3. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    4. Mr. Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 2011/036, International Monetary Fund.
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    More about this item

    Keywords

    credit rationing; excess liquidity; inside liquidity; risk preference; E58; L51;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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