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Rollover Risk, Liquidity and Macroprudential Regulation
Author(s) -
AHNERT TONI
Publication year - 2016
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12363
Subject(s) - market liquidity , rollover (web design) , liquidity crisis , liquidity risk , monetary economics , ex ante , funding liquidity , intermediary , business , economics , financial system , finance , macroeconomics , computer science , world wide web
I study rollover risk in wholesale funding markets when intermediaries hold liquidity ex ante and fire sales may occur ex post . Multiple equilibria exist in a global rollover game: intermediate liquidity holdings support equilibria with both positive and zero expected liquidation. A simple uniqueness refinement pins down the private liquidity choice, which balances the forgone expected return on investment with reduced fragility and costly liquidation. Due to fire sales, liquidity holdings are strategic substitutes. Intermediaries free ride on the holdings of other intermediaries, causing excessive liquidation. To internalize the systemic nature of liquidity, a macroprudential authority imposes liquidity buffers.