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Balance sheet channel with information-trading frictions in secondary markets

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dc.contributor.author Asriyan, Vladimir
dc.date.accessioned 2021-03-23T09:03:51Z
dc.date.available 2021-03-23T09:03:51Z
dc.date.issued 2020
dc.identifier.citation Asriyan V. Balance sheet channel with information-trading frictions in secondary markets. Rev Econ Stud. 2020 Oct 29;88(1):44-90. DOI: 10.1093/restud/rdaa069
dc.identifier.issn 0034-6527
dc.identifier.uri http://hdl.handle.net/10230/46898
dc.description.abstract This article develops a theory of the balance sheet channel that places a central emphasis on the liquidity of secondary markets for macro-contingent claims. We show that the presence of dispersed information and imperfect competition in secondary markets, interacted with financial constraints, results in mispricing and misallocation of aggregate risk, distorts aggregate investment, and exacerbates asset price and output volatility. The magnitude of balance sheet amplification effects becomes endogenously tied to the severity of market frictions, which likely vary over time and across economies. The laissez-faire equilibrium is constrained inefficient due to a novel externality originating from rent-extracting behaviour of agents in secondary markets. Optimal corrective policy boosts secondary market liquidity through subsidies to trade in macro-contingent claims, which enhances aggregate risk-sharing and stabilizes the business cycle.
dc.description.sponsorship I acknowledge financial support from the Spanish Ministry of Economy and Competitiveness Grant (ECO2014-54430-P), the Barcelona GSE Seed Grant and the Generalitat de Catalunya AGAUR Grant (2017SGR1393).
dc.format.mimetype application/pdf
dc.language.iso eng
dc.publisher Oxford University Press
dc.relation.ispartof The Review of Economic Studies. 2020 Oct 29;88(1):44-90
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
dc.rights.uri http://creativecommons.org/licenses/by-nc/4.0/
dc.title Balance sheet channel with information-trading frictions in secondary markets
dc.type info:eu-repo/semantics/article
dc.identifier.doi http://dx.doi.org/10.1093/restud/rdaa069
dc.subject.keyword Balance sheet channel
dc.subject.keyword Secondary markets
dc.subject.keyword Risk-sharing
dc.subject.keyword Liquidity
dc.subject.keyword Information dispersion
dc.subject.keyword Trading frictions
dc.subject.keyword Mechanism design
dc.subject.keyword Financial regulation
dc.relation.projectID info:eu-repo/grantAgreement/ES/1PE/ECO2014-54430-P
dc.rights.accessRights info:eu-repo/semantics/openAccess
dc.type.version info:eu-repo/semantics/publishedVersion

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