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Economics of Regulation: Credit Rationing and Excess Liquidity

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  • Hye-Jin 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.

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  • Hye-Jin Cho, 2016. "Economics of Regulation: Credit Rationing and Excess Liquidity," Post-Print halshs-01400251, HAL.
    • Handle: RePEc:hal:journl:halshs-01400251
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01400251
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    References listed on IDEAS

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