IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Liquidity and Ambiguity: Banks or Asset Markets?

Listed author(s):
  • Eichberger, Jürgen

    (Alfred Weber Institut, Universität Heidelberg)

  • Spanjers, Willem

    ()

    (Kingston University London)

We study the impact of ambiguity on financial intermediation in an economy where agents have random liquidity needs. The ambiguity the agents face is modeled by the degree of confidence in their additive beliefs. We compare an optimal liquidity allocation with the allocation achieved by trade in an asset market, by a mutual fund, and by a competitive banking sector. For low levels of confidence, intermediation is superfluous. For intermediate levels the asset market, and for high levels of confidence banks are the preferred intermediary arrangements. The desirability of mutual funds depends crucially on the possibility of short sales. When short selling of fund shares is feasible, the asset market outcome results. If short sales are impossible, then a mutual fund can implement the optimal outcome for any degree of confidence.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://staffnet.kingston.ac.uk/~ku33681/RePEc/kin/papers/2003_011.pdf
File Function: Full text
Download Restriction: no

Paper provided by School of Economics, Kingston University London in its series Economics Discussion Papers with number 2003-11.

as
in new window

Length: 65 pages
Date of creation: 01 Oct 2003
Handle: RePEc:ris:kngedp:2003_011
Contact details of provider: Postal:
Kingston University London, School of Economics, Penrhyn Road, Kingston upon Thames, Surrey, KT1 2EE, UK

Web page: http://fass.kingston.ac.uk/departments/economics/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
  2. Franklin Allen & Douglas Gale, 1998. "Optimal Financial Crises," Journal of Finance, American Finance Association, vol. 53(4), pages 1245-1284, 08.
  3. Eichberger, Jurgen & Grant, Simon & Kelsey, David, 2007. "Updating Choquet beliefs," Journal of Mathematical Economics, Elsevier, vol. 43(7-8), pages 888-899, September.
  4. Franklin Allen & Douglas Gale, 2004. "Financial Intermediaries and Markets," Econometrica, Econometric Society, vol. 72(4), pages 1023-1061, 07.
  5. Diamond, Douglas W, 1997. "Liquidity, Banks, and Markets," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 928-956, October.
  6. Chateauneuf, Alain & Eichberger, Jurgen & Grant, Simon, 2007. "Choice under uncertainty with the best and worst in mind: Neo-additive capacities," Journal of Economic Theory, Elsevier, vol. 137(1), pages 538-567, November.
  7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  8. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-592, June.
  9. Marinacci, Massimo, 2000. "Ambiguous Games," Games and Economic Behavior, Elsevier, vol. 31(2), pages 191-219, May.
  10. Jürgen Eichberger & David Kelsey, 1999. "E-Capacities and the Ellsberg Paradox," Theory and Decision, Springer, vol. 46(2), pages 107-138, April.
  11. Krugman, Paul (ed.), 2007. "Currency Crises," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226454641, December.
  12. Ghatak, Subrata & Spanjers, Willem, 2007. "Monetary policy rules in transition economies: the impact of ambiguity," Economics Discussion Papers 2007-2, School of Economics, Kingston University London.
  13. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Sarin, Rakesh K & Wakker, Peter, 1992. "A Simple Axiomatization of Nonadditive Expected Utility," Econometrica, Econometric Society, vol. 60(6), pages 1255-1272, November.
  15. Subrata Ghatak, 2007. "Monetary policy rules in transition economies: the impact of ambiguity," International Journal of Development Issues, Emerald Group Publishing, vol. 6(1), pages 26-37, February.
  16. David Kelsey & Willy Spanjers, 2004. "Ambiguity in Partnerships," Economic Journal, Royal Economic Society, vol. 114(497), pages 528-546, 07.
  17. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
  18. Ross Levine, 1999. "Financial development and growth: where do we stand?," Estudios de Economia, University of Chile, Department of Economics, vol. 26(2 Year 19), pages 113-136, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ris:kngedp:2003_011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andrea Ingianni)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.