Liquidity Risk and Financial Competition: Implications on Asset Prices and Monetary Policy
Recent events in financial markets have led to a substantial decline in the number of financial institutions, which may affect the extent of financial competition. What are the implications of such outcome on the degree of risk sharing, asset markets, and monetary policy? In order to answer these questions, I develop a two-sector monetary growth in which money and financial institutions play important roles. Compared to a perfectly competitive financial sector, I demonstrate that imperfect competition in deposits and capital markets can have substantial adverse consequences on capital formation, assets prices, and the degree of risk sharing. More importantly, market power in financial markets may overturn the Tobin effect present under a perfectly competitive financial sector. This necessarily happens in economies with high degrees of liquidity risk and low levels of capital formation.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: 6900 North Loop 1604 West, San Antonio, TX 78249-0631|
Web page: http://business.utsa.edu/wps
More information through EDIRC
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.:
- Westbrook, M Daniel & Tybout, James R, 1993. "Estimating Returns to Scale with Large, Imperfect Panels: An Application to Chilean Manufacturing Industries," World Bank Economic Review, World Bank Group, vol. 7(1), pages 85-112, January.
- Harri Ramcharran, 2001. "Estimating productivity and returns to scale in the US textile industry," Empirical Economics, Springer, vol. 26(3), pages 515-524.
- Eakin, B Kelly & McMillen, Daniel P & Buono, Mark J, 1990. "Constructing Confidence Intervals Using the Bootstrap: An Application to a Multi-Product Cost Function," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 339-44, May.
- Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
- Mikhail Kouliavtsev & Susan Christoffersen & Philip Russel, 2007. "Productivity, Scale and Efficiency in the U.S. Textile Industry," Empirical Economics, Springer, vol. 32(1), pages 1-18, April.
- Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
- Lee, Jaimin, 1995. "Comparative advantage in manufacturing as a determinant of industrialization: The Korean case," World Development, Elsevier, vol. 23(7), pages 1195-1214, July.
- Guilkey, David K & Lovell, C A Knox & Sickles, Robin C, 1983. "A Comparison of the Performance of Three Flexible Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 591-616, October.
- Amsden, Alice H, 1991. "Diffusion of Development: The Late-Industrializing Model and Greater East Asia," American Economic Review, American Economic Association, vol. 81(2), pages 282-86, May.
- Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
- Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
- Ramcharran, Harri, 2001. "Productivity, returns to scale and the elasticity of factor substitution in the USA apparel industry," International Journal of Production Economics, Elsevier, vol. 73(3), pages 285-291, October.
- Appelbaum, Elie, 1978. "Testing neoclassical production theory," Journal of Econometrics, Elsevier, vol. 7(1), pages 87-102, February.
When requesting a correction, please mention this item's handle: RePEc:tsa:wpaper:0104. 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: (Eddie Salinas)
If references are entirely missing, you can add them using this form.