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Inside and Outside Liquidity (Paperback)
Loot Price: R1,065
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Inside and Outside Liquidity (Paperback)
Series: The MIT Press
Expected to ship within 10 - 15 working days
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Two leading economists develop a theory explaining the demand for
and supply of liquid assets. Why do financial institutions,
industrial companies, and households hold low-yielding money
balances, Treasury bills, and other liquid assets? When and to what
extent can the state and international financial markets make up
for a shortage of liquid assets, allowing agents to save and share
risk more effectively? These questions are at the center of all
financial crises, including the current global one. In Inside and
Outside Liquidity, leading economists Bengt Holmstroem and Jean
Tirole offer an original, unified perspective on these questions.
In a slight, but important, departure from the standard theory of
finance, they show how imperfect pledgeability of corporate income
leads to a demand for as well as a shortage of liquidity with
interesting implications for the pricing of assets, investment
decisions, and liquidity management. The government has an active
role to play in improving risk-sharing between consumers with
limited commitment power and firms dealing with the high costs of
potential liquidity shortages. In this perspective, private
risk-sharing is always imperfect and may lead to financial crises
that can be alleviated through government interventions.
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