We study the effect of asset shortages on liquidity in economies with limited enforcement of debt contracts. We establish that, under a suitable assumption in terms of gains from trade, liquidity does not dry up and trading volumes do not disappear as credit conditions worsen. The equilibrium outcome becomes arbitrarily close to a purely speculative equilibrium, and bubbles occur in the limit. The result applies to incomplete markets and, more generally, to equilibria where collateral constraints interfere with the additivity of the payoff pricing functional.

Bloise, G., Citanna, A. (2019). Asset shortages, liquidity and speculative bubbles. JOURNAL OF ECONOMIC THEORY, 183, 952-990 [10.1016/j.jet.2019.07.011].

Asset shortages, liquidity and speculative bubbles

Gaetano Bloise
;
2019-01-01

Abstract

We study the effect of asset shortages on liquidity in economies with limited enforcement of debt contracts. We establish that, under a suitable assumption in terms of gains from trade, liquidity does not dry up and trading volumes do not disappear as credit conditions worsen. The equilibrium outcome becomes arbitrarily close to a purely speculative equilibrium, and bubbles occur in the limit. The result applies to incomplete markets and, more generally, to equilibria where collateral constraints interfere with the additivity of the payoff pricing functional.
2019
Pubblicato
Rilevanza internazionale
Articolo
Esperti anonimi
Settore SECS-P/01 - ECONOMIA POLITICA
English
Liquidity Collateral Credit Conditional efficiency Speculative bubble
https://doi.org/10.1016/j.jet.2019.07.011
Bloise, G., Citanna, A. (2019). Asset shortages, liquidity and speculative bubbles. JOURNAL OF ECONOMIC THEORY, 183, 952-990 [10.1016/j.jet.2019.07.011].
Bloise, G; Citanna, A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/296137
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