Endogenous Credit Cycles
We build a model in which verifiability of private debts, timing mismatch in debt settlements and borrowing leverage lead to liquidity crisis in the financial market. Central bank can respond to the liquidity crisis by adopting an unconventional monetary policy that resembles repurchase agreements between the central bank and the lenders. This policy is effective if the timing mismatch is nominal (i.e., a settlement participation risk). It is ineffective if the timing mismatch is driven by a real shock (i.e., preference shock).
|Date of creation:||22 Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: 118 Professional Building, Columbia, MO 65211|
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
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.:
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Viral V. Acharya & S. Viswanathan, 2010.
"Leverage, Moral Hazard and Liquidity,"
NBER Working Papers
15837, National Bureau of Economic Research, Inc.
- Champ, B. & Smith, B.D., 1991.
"Currency Elasticity and Banking Panics: theory and Evidence,"
University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers
9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-64, November.
- Champ, B. & Snith, B.D. & Williamson, D.S., 1991. "Currency Elasticity and Banking Panics: Theory and Evidence," RCER Working Papers 292, University of Rochester - Center for Economic Research (RCER).
- Adrian, Tobias & Shin, Hyun Song, 2010.
"Liquidity and leverage,"
Journal of Financial Intermediation,
Elsevier, vol. 19(3), pages 418-437, July.
- Schreft, Stacey L & Smith, Bruce D, 2002.
"The Conduct of Monetary Policy with a Shrinking Stock of Government Debt,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 34(3), pages 848-82, August.
- Stacey L. Schreft & Bruce D. Smith, 2002. "The conduct of monetary policy with a shrinking stock of government debt," Proceedings, Federal Reserve Bank of Cleveland, pages 848-886.
- Stacey L. Schreft & Bruce D. Smith, 2001. "The conduct of monetary policy with a shrinking stock of government debt," Research Working Paper RWP 01-09, Federal Reserve Bank of Kansas City.
- Robert E. Hall, 2011. "The High Sensitivity of Economic Activity to Financial Frictions," Economic Journal, Royal Economic Society, vol. 121(552), pages 351-378, 05.
- Orphanides, Athanasios, 2002. "Comment on the Conduct of Monetary Policy with a Shrinking Stock of Government Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 883-86, August.
When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:1114. 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: (Valerie Kulp)
If references are entirely missing, you can add them using this form.