Endogenously Declining Liquidity and Rollover-Risk Spillovers /
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Author / Creator: | Doh, Hyun Soo, author. |
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Imprint: | 2017. Ann Arbor : ProQuest Dissertations & Theses, 2017 |
Description: | 1 electronic resource (51 pages) |
Language: | English |
Format: | E-Resource Dissertations |
Local Note: | School code: 0330 |
URL for this record: | http://pi.lib.uchicago.edu/1001/cat/bib/11715050 |
Other authors / contributors: | University of Chicago. degree granting institution. |
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ISBN: | 9780355077896 |
Notes: | Advisors: Zhiguo He; Fernando Alvarez Committee members: Lars Hansen; Stavros Panageas. Dissertation Abstracts International, Volume: 78-12(E), Section: A. English |
Summary: | This paper studies a short-term debt market in which rollover risks spread across heterogeneous banks because a liquidation price of assets declines over time endogenously. To this aim, the paper uses a general equilibrium approach to analyze interactions between the primary and secondary debt markets. Specifically, in this economy, rollover decisions of creditors and takeover-timing decisions of potential buyers of assets determine the supply and demand for failed assets, respectively. A liquidation price clears the market in equilibrium. In fact, the paper assumes potential buyers have different asset-management abilities and highly skilled buyers are scarce. Thus, a less and less skilled buyer becomes a marginal buyer as time goes by, pushing down the liquidation price. This liquidation-driven pecuniary externality is what propagates rollover risks across different banks. The model further implies injecting emergency funds to only a tiny number of banks may trigger earlier runs on those banks. Extending debt maturities causes a similar consequence. The paper develops a new method to characterize transition dynamics of equilibrium analytically. |
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