Economics of Regulation: Credit Rationing and Excess Liquidity

Hye-Jin Cho ()
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Hye-Jin Cho: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machina's triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the financial sector where the imbalance argument comes from credit rationing extended from outside liquidity (holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exemplifies the combination of credit, liquidity and regulation.

Keywords: credit rationing; excess liquidity; inside liquidity; risk preference; machina triangle (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-ara and nep-ban
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Published in 2016

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