Liquidity and ambiguity: banks or asset markets?
We study the impact of ambiguity on two alternative institutions of financial intermediation in an economy where consumers face uncertain liquidity needs. The ambiguity the consumers experience is modeled by the degree of confidence in their additive beliefs. We analyze the optimal liquidity allocat...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Book/Monograph Working Paper |
| Language: | English |
| Published: |
Heidelberg
University of Heidelberg, Department of Economics
June 2007
|
| Edition: | This version June 2007 |
| Series: | Discussion paper series / Universität Heidelberg, Department of Economics
no. 444 |
| In: |
Discussion paper series (no. 444)
|
| Subjects: | |
| Online Access: | Resolving-System, Volltext: http://hdl.handle.net/10419/127259 Verlag, Volltext: http://www.awi.uni-heidelberg.de/with2/Discussion%20papers/papers/dp444.pdf 
|
| Author Notes: | Jürgen Eichberger and Willy Spanjers |
| Summary: | We study the impact of ambiguity on two alternative institutions of financial intermediation in an economy where consumers face uncertain liquidity needs. The ambiguity the consumers experience is modeled by the degree of confidence in their additive beliefs. We analyze the optimal liquidity allocation and two institutional settings for implementing this allocation: a secondary asset market and a bank deposit contract. For full confidence we obtain the well-known result that consumers prefer the bank deposit contract over the asset market, since the former can provide the optimal cross subsidy for consumers with high liquidity needs. With increasing ambiguity this preference will be reversed: the asset market is preferred, since it avoids inefficient liquidation if the bank reserve holdings turn out to be suboptimal. |
|---|---|
| Physical Description: | Online Resource |
| Format: | Systemvoraussetzungen: Acrobat Reader. |