Liquidity and the threat of fraudulent assets
By: Yiting Li, Guillaume Rocheteau, Pierre-Olivier Weill
Contributors: Rocheteau,  Guillaume; Weill, Pierre-Olivier; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17500; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17500.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We study an over-the-counter (OTC) market with bilateral meetings and bargaining where the usefulness of assets, as means of payment or collateral, is limited by the threat of fraudulent practices.  We assume that agents can produce fraudulent assets at a positive cost, which generates endogenous upper bounds on the quantity of each asset that can be sold, or posted as collateral in the OTC market.  Each endogenous, asset-specific, resalability constraint depends on the vulnerability of the asset to fraud, on the frequency of trade, and on the current and future prices of the asset.  In equilibrium, the set of assets can be partitioned into three liquidity tiers, which differ in their resalability, their prices, their sensitivity to shocks, and their responses to policy interventions.  The dependence of an asset's resalability on its price creates a pecuniary externality, which leads to the result that some policies commonly thought to improve liquidity can be welfare reducing"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 1/3/2012.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.