A Theory of Liquidity and Regulation of Financial Intermediation

DSpace/Manakin Repository

A Theory of Liquidity and Regulation of Financial Intermediation

Citable link to this page


Title: A Theory of Liquidity and Regulation of Financial Intermediation
Author: Tsyvinski, Aleh; Golosov, Mikhail; Farhi, Emmanuel

Note: Order does not necessarily reflect citation order of authors.

Citation: Farhi, Emmanuel, Mikhail Golosov, and Aleh Tsyvinski. 2009. A theory of liquidity and regulation of financial intermediation. Review of Economic Studies 76, no. 3: 973-992.
Full Text & Related Files:
Abstract: This paper studies a Diamond–Dybvig model of providing insurance against unobservable liquidity shocks in the presence of unobservable trades. We show that competitive equilibria are inefficient. A social planner finds it beneficial to introduce a wedge between the interest rate implicit in optimal allocations and the economy's marginal rate of transformation. This improves risk sharing by reducing the attractiveness of joint deviations where agents simultaneously misrepresent their type and engage in trades on private markets. We propose a simple implementation of the optimum that imposes a constraint on the portfolio share that financial intermediaries invest in short-term assets.
Published Version: http://dx.doi.org/10.1111/j.1467-937X.2009.00540.x
Other Sources: http://www.atl-res.com/macro/papers/Golosov%20paper.pdf
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:4481504
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)


Search DASH

Advanced Search