A Financial Accelerator through Coordination Failure

de Groot, Oliver ORCID: 0000-0002-6853-1129 (2021) A Financial Accelerator through Coordination Failure. The Economic Journal, 131 (636). pp. 1620-1642.

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Official URL: http://dx.doi.org/10.1093/ej/ueaa080

Abstract

This article studies the effect of liquidity crises in short-term debt markets in a dynamic general equilibrium framework. Creditors (retail banks) receive imperfect signals regarding the profitability of borrowers (wholesale banks) and, based on these signals and their beliefs about other creditors’ actions, choose whether to roll over funding, or not. The unco-ordinated actions of creditors cause a suboptimal incidence of rollover, generating an illiquidity premium. Leverage magnifies this co-ordination inefficiency. Illiquidity shocks in credit markets result in sharp contractions in output. Policy responses are analysed.

Item Type:	Article
Depositing User:	Symplectic Admin
Date Deposited:	08 Jul 2020 09:40
Last Modified:	18 Jan 2023 23:46
DOI:	10.1093/ej/ueaa080
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3093179