Liquidity and Crises

Paperback | February 4, 2011

EditorFranklin Allen, Elena Carletti, Jan Pieter Krahnen

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Financial crises have been pervasive for many years. Their frequency in recent decades has been double that of the Bretton Woods Period (1945-1971) and the Gold Standard Era (1880-1993), comparable only to the period during the Great Depression. Nevertheless, the financial crisis that startedin the summer of 2007 came as a great surprise to most people. What initially was seen as difficulties in the U.S. subprime mortgage market, rapidly escalated and spilled over first to financial markets and then to the real economy. The crisis changed the financial landscape worldwide and its fullcosts are yet to be evaluated.One important reason for the global impact of the 2007-2009 financial crisis was massive illiquidity in combination with an extreme exposure of many financial institutions to liquidity needs and market conditions. As a consequence, many financial instruments could not be traded anymore, investorsran on a variety of financial institutions particularly in wholesale markets, financial institutions and industrial firms started to sell assets at fire sale prices to raise cash, and central banks all over the world injected huge amounts of liquidity into financial systems. But what is liquidity and why is it so important for firms and financial institutions to command enough liquidity? This book brings together classic articles and recent contributions to this important field of research. It provides comprehensive coverage of the role of liquidity in financial crisesand is divided into five parts: (i) liquidity and interbank markets; (ii) the public provision of liquidity and regulation; (iii) money, liquidity and asset prices; (iv) contagion effects; (v) financial crises and currency crises.

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Financial crises have been pervasive for many years. Their frequency in recent decades has been double that of the Bretton Woods Period (1945-1971) and the Gold Standard Era (1880-1993), comparable only to the period during the Great Depression. Nevertheless, the financial crisis that startedin the summer of 2007 came as a great surpri...

Franklin Allen is the Nippon Life Professor of Finance and Professor of Economics at the Wharton School of the University of Pennsylvania. He has been on the faculty since 1980. He is currently Co-Director of the Wharton Financial Institutions Center. He is a past President of the American Finance Association. Elena Carletti is Profess...
Format:PaperbackDimensions:720 pages, 7.09 × 10 × 1.89 inPublished:February 4, 2011Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0195390717

ISBN - 13:9780195390711

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Table of Contents

1. Franklin Allen, Elena Carletti, Jan Pieter Krahnen, and Marcel Tyrell: An Introduction to Liquidity and CrisesSection 1: Liquidity and Interbank Markets2. Sudipto Bhattacharya, Douglas Gale, W. Barnett and K. Singleton: Preference Shocks, Liquidity and Central Bank Policy - New Approaches to Monetary Economics, Cambridge University Press, 1987, pp. 69-88.3. Andrea Eisfeldt: Endogenous Liquidity in Asset Markets - Journal of Finance, February 2004, 59, pp.1-304. Franklin Allen and Douglas Gale: Financial Intermediaries and Markets - Econometrica, 72(4), July 2004, pp. 1023-106.15. Franklin Allen and Douglas Gale: Financial Fragility, Liquidity and Asset Prices - Journal of the European Economic Association, 2(6), December 2004, pp. 1015-1048.6. Xavier Freixas and Cornelia Holthausen: Interbank Market Integration under Asymmetric Information - Review of Financial Studies, 18(2), Summer 2005, pp. 459-90.7. Craig Furfine: Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Markets - Journal of Business, January 2001, 74, 33-57.Section 2: Public Provision of Liquidity and Regulation8. Bengt Holmstrom and Jean Tirole: Private and Public Supply of Liquidity - Journal of Political Economy, February 1998, 106, pp.1-40.9. Gary Gorton and Lixin Huang: Liquidity, Efficiency and Bank Bailouts - American Economic Review, 94(3), June 2004, pp. 455-483.10. Mark Flannery: Financial Crises, Payments System Problem and Discount Window Lending - Journal of Money, Credit and Banking, November 1996, 28(4), pp. 804-824.11. Rafael Repullo: Liquidity, Risk Taking, and the Lender of Last Resort - International Journal of Central Banking, 1, December 2005, pp. 47-80.12. Jean-Charles Rochet and Xavier Vives: Coordination Failures and the Lender of Last Resort: Was Bagehot Right after all? - Journal of the European Economic Association, 2(6), December 2004, pp. 1116-47.13. Giovanni Dell'Ariccia and Robert Marquez: Competition among Regulators and Credit Market Integration - Journal of Financial Economics, 79(2), February 2006, pp. 401-30.Section 3: Money, Liquidity Crises and Asset Prices14. Douglas Diamond and Raghuram Rajan: Money in a Theory of Banking - American Economic Review, 96(1), March 2006, pp. 30-53.15. Nobuhiro Kiyotaki and John Moore: Liquidity and Asset Prices - International Economic Review, 46(2), May 2005, pp. 317-4916. Juan Cordoba and Marla Ripoll: Collateral Constraints in a Monetary Economy - Journal of the European Economic Association, 2(6), December 2004, pp. 1172-1205.17. Guido Lorenzoni: Inefficient Credit Booms - Review of Economic Studies, 75(3), July 2008, pp. 809-833.Section 4: Contagion Effects in Financial Crises18. Amil Dasgupta: Financial Contagion through Capital Connections: A Model of the Origin and Spread of Bank Panics - Journal of the European Economic Association, 2(6), December 2004, pp. 1049-84.19. Viral V. Acharya and Tanju Yorulmazer: Information Contagion and Bank Herding - Journal of Money, Credit and Banking, February 2008, 40(1), pp. 215-231.20. Viral V. Acharya and Tanju Yorulmazer: Cash-in-the-market Pricing and Optimal Resolution of Bank Failures - Review of Financial Studies, November 2008, 21, pp. 2705-2742.21. Franklin Allen and Elena Carletti: Credit Risk Transfer and Contagion - Journal of Monetary Economics, 2008, 53, 89-111.22. Christian Upper and Andreas Worms: Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion? - European Economic Review, 48(4), August 2004, pp. 827-49.Section 5: Financial Crises and Currency Crises23. Philipp Hartmann, Stefan Straetmans and Casper de Vries: Asset Market Linkages in Crisis Periods - Review of Economics and Statistics, 86(1), February 2004, pp. 313-326.24. Itay Goldstein: Strategic Complementarities and the Twin Crises - Economic Journal, 115(503), April 2005, pp. 368-90.25. Jean Tirole: Inefficient Foreign Borrowing: A Dual-and-Common-Agency Perspective - American Economic Review, 93(5), December 2003, pp. 1678-1702.26. Ricardo Caballero and Arvind Krishnamurthy: Exchange Rate Volatility and the Credit Channel in Emerging Markets: A "Vertical" Analysis - International Journal of Central Banking, 1(1), June 2005, pp. 207-45.