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Three essays on liquidity crisis, monetary policy, and banking regulation [Elektronische Ressource] / vorgelegt von Jin Cao

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Three Essays on LiquidityCrisis, Monetary Policy,and Banking RegulationInaugural-Dissertationzur Erlangung des GradesDoctor oeconomiae publicae (Dr. oec. publ.)an der Ludwig-Maximilians-Universit¨ at Munc¨ hen2009vorgelegt vonJin CaoReferent: Prof. Dr. Gerhard IllingKorreferent: Prof. Ted Temzelides, Ph. D.Promotionsabschlussberatung: 10. Februar 2010Micro Fragilityand Macro StabilityThree Essays on LiquidityCrisis, Monetary Policy,and Banking RegulationJin CaoA Wiley-Interscience PublicationJOHN WILEY & SONS, INC.New York / Chichester / Weinheim / Brisbane / Singapore / TorontovTo my parentsContentsPreface xviiAcknowledgments xixAcronyms xxiPart I IntroductionPart II Liquidity Shortages as Endogenous Systemic Risks1 Liquidity Shortages and Monetary Policy 11.1 Introduction 21.2 The model — basic settings 91.3 Pure idiosyncratic shocks 121.4 The case of aggregate risk 17viii CONTENTS1.5 Central bank intervention 231.6 Conclusion 30Appendix 32A.1 Proofs 32A.2 A numerical example for the equilibrium of mixedstrategies 46Part III Endogenous Systemic Liquidity Risk and BankingRegulation2 Endogenous Systemic Liquidity Risk 512.1 Introduction 522.2 The structure of the model 572.3 Lender of Last Resort policy 632.4 The role of equity and narrow banking 672.5 Conclusion 76Appendix 78A.1 Proofs 78A.2 Results of numerical simulations 843 Illiquidity, Insolvency, and Banking Regulation 873.1 Introduction 883.2 The model 953.

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Published 01 January 2009
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Three Essays on Liquidity
Crisis, Monetary Policy,
and Banking Regulation
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit¨ at Munc¨ hen
2009
vorgelegt von
Jin Cao
Referent: Prof. Dr. Gerhard Illing
Korreferent: Prof. Ted Temzelides, Ph. D.
Promotionsabschlussberatung: 10. Februar 2010Micro Fragility
and Macro Stability
Three Essays on Liquidity
Crisis, Monetary Policy,
and Banking Regulation
Jin Cao
A Wiley-Interscience Publication
JOHN WILEY & SONS, INC.
New York / Chichester / Weinheim / Brisbane / Singapore / Torontov
To my parentsContents
Preface xvii
Acknowledgments xix
Acronyms xxi
Part I Introduction
Part II Liquidity Shortages as Endogenous Systemic Risks
1 Liquidity Shortages and Monetary Policy 1
1.1 Introduction 2
1.2 The model — basic settings 9
1.3 Pure idiosyncratic shocks 12
1.4 The case of aggregate risk 17viii CONTENTS
1.5 Central bank intervention 23
1.6 Conclusion 30
Appendix 32
A.1 Proofs 32
A.2 A numerical example for the equilibrium of mixed
strategies 46
Part III Endogenous Systemic Liquidity Risk and Banking
Regulation
2 Endogenous Systemic Liquidity Risk 51
2.1 Introduction 52
2.2 The structure of the model 57
2.3 Lender of Last Resort policy 63
2.4 The role of equity and narrow banking 67
2.5 Conclusion 76
Appendix 78
A.1 Proofs 78
A.2 Results of numerical simulations 84
3 Illiquidity, Insolvency, and Banking Regulation 87
3.1 Introduction 88
3.2 The model 95
3.3 Liquidity regulation, nominal contract and
Lender of Last Resort policy 107
3.4 Insolvency risk and equity requirement 113
3.5 Conclusion 117
Appendix 120CONTENTS ix
A.1 Proofs 120
A.2 Results of numerical simulations 123
Part IV Epilogue
References 133