Wei, Bin
Yue, Vivian Z.
2020-07-21T17:58:04Z
2020-07-21T17:58:04Z
2020-04-27
0165-1889
https://www.sciencedirect.com/science/article/pii/S0165188920300841?via%3Dihub#keys0001
http://hdl.handle.net/20.500.12010/10874
20 páginas
application/pdf
Journal of Economic Dynamics and Control
reponame:Expeditio Repositorio Institucional UJTL
instname:Universidad de Bogotá Jorge Tadeo Lozano
Liquidity backstop
Debt runLender of last resort
Liquidity backstops and dynamic debt runs
Artículo
Síndrome respiratorio agudo grave
COVID-19
SARS-CoV-2
Coronavirus
info:eu-repo/semantics/openAccess
info:eu-repo/semantics/acceptedVersion
https://doi.org/10.1016/j.jedc.2020.103916
Liquidity backstops can mitigate runs. In this paper we develop a dynamic model of debt runs based on He and Xiong (2012) to identify, both conceptually and quantitatively, the value of a liquidity backstop for its run-mitigating role. For the purpose of identification, we focus on the municipal bond markets for variable rate demand obligations and auction rate securities. Based on the run episodes in these markets during the financial crisis of 2007-09 and the calibrated model, we find that the value of a liquidity backstop is about 14.5 basis points per annum. Our findings have important policy implications regarding the effectiveness of liquidity backstops in ameliorating problems of financial instability.