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Journal Article
Jargon alert: Liquidity trap
Haltom, Renee Courtois (2012-01)
Econ Focus , Volume 16 , Issue 1Q , Pages 10

Conference Paper
Liquidity and fire sales
LeRoy, Stephen F.; Kelly, David L. (2005)
A ?fire sale? occurs when the owner of a good offers it for sale at a price strictly below the price that some buyers would willingly pay for the good. He does so because the advantage of the quick sale made possible by the lower price outweighs the higher price that other potential buyers would pay, given the likely delay in locating these buyers in the latter case. Fire sales can occur only in illiquid markets. This paper generalizes earlier treatments of illiquid markets by assuming that the asset can be offered for sale at any time, rather than only after its owner loses his capacity to ...
Proceedings

Journal Article
Resolving the liquidity effect.
Pagan, Adrian R.; Robertson, John C. (1995-05)
Review , Issue May , Pages 33-54

Working Paper
Discretionary monetary policy and the zero lower bound on nominal interest rates
Billi, Roberto M.; Adam, Klaus (2005)
Ignoring the existence of the zero bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with an occasionally binding lower bound, calibrated to the U.S. economy, suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy. The fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound. The welfare losses ...
Research Working Paper , Paper RWP 05-08

Conference Paper
Hedging bank liquidity risk
Schuermann, Til; Strahan, Philip E.; Gatev, Evan (2006)
Liquidity risk in banking has been attributed to transactions deposits and their potential to spark runs or panics. We show instead that transactions deposits help banks hedge liquidity risk from unused loan commitments. Bank stock-return volatility increases with unused commitments, but the increase is smaller for banks with high levels of transactions deposits. This deposit-lending risk management synergy becomes more powerful during periods of tight liquidity, when nervous investors move funds into their banks. Our results reverse the standard notion of liquidity risk at banks, where runs ...
Proceedings , Paper 1024

Working Paper
Sovereign CDS and bond pricing dynamics in emerging markets: does the cheapest-to-deliver option matter?
Cai, Fang; Ammer, John (2007)
We examine the relationships between credit default swap (CDS) premiums and bond yield spreads for nine emerging market sovereign borrowers. We find that these two measures of credit risk deviate considerably in the short run, due to factors such as liquidity and contract specifications, but we estimate a stable long-term equilibrium relationship for most countries. In particular, CDS premiums tend to move more than one-for-one with yield spreads, which we show is broadly consistent with the presence of a significant "cheapest-to-deliver" (CTD) option. In addition, we find a variety of ...
International Finance Discussion Papers , Paper 912

Report
Traders' broker choice, market liquidity and market structure
Sarkar, Asani; Chakravarty, Sugato (1997)
Hedgers and a risk-neutral informed trader choose between a broker who takes a position in the asset (a capital broker) and a broker who does not (a discount broker). The capital broker exploits order flow information to mimic informed trades and offset hedgers' trades, reducing informed profits and hedgers' utility. But the capital broker has a larger capacity to execute hedgers' orders, increasing market depth. In equilibrium, hedgers choose the broker with the lowest price per unit of utility while the informed trader chooses the broker with the lowest price per unit of the informed order ...
Staff Reports , Paper 28

Journal Article
Real estate liquidity
Krainer, John (1999)
Residential real estate markets often go through "hot" and "cold" periods. A hot market is one where prices are rising, liquidity is good in that average selling times are short, and the volume of transactions is higher than the norm. Cold markets have just the opposite characteristics - prices are falling, liquidity is poor, and volume is low. In this paper I show how liquidity depends on the value of the housing service flow, which in turn reflects the aggregate state of the economy. I use data from the San Francisco Bay Area to investigate the relationship between marketing times ...
Economic Review

Journal Article
The Fed, liquidity, and credit allocation
Thornton, Daniel L. (2009-01)
The current financial turmoil has generated considerable discussion of liquidity. Moreover, it has been widely reported that the Federal Reserve played a major role in supplying liquidity to financial markets during this distressed time. This article describes two ways in which the Fed has supplied liquidity since late 2007. The first is traditional: The Fed supplies liquidity by providing credit through open market operations and by lending to depository institutions at the so-called discount window. The second is by enhancing the liquidity of portfolios of some institutions by replacing ...
Review , Volume 91 , Issue Jan , Pages 13-22

Working Paper
Bank balance sheet dynamics under a regulatory liquidity-coverage-ratio constraint
VanHoose, David D.; Balasubramanyan, Lakshmi (2012)
This paper presents a dynamic model of a bank?s optimal choices of imposing a binding liquidity-coverage-ratio (LCR) constraint. Our baseline balance-sheet dynamics starts with portfolio separation and no LCR constraint. Under a scenario in which regulators prohibit banks from applying securities to fulf ll the LCR constraint, portfolio separation continues to hold, but deposit holdings depend on the extent to which the LCR constraint is binding. When banks are allowed to apply securities toward satisfying the constraint, portfolio separation can break down and lead to ambiguous effects on ...
Working Papers (Old Series) , Paper 1209

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