{"title":"Asymmetric information in frictional markets for liquidity: Collateralized credit vs asset sale","authors":"Florian Madison","doi":"10.1016/j.jedc.2023.104808","DOIUrl":null,"url":null,"abstract":"<div><p><span><span>This paper studies (non-)equivalence of collateralized credit and asset sales in over-the-counter markets subject to commitment and information frictions. Embedded in a search-theoretic general equilibrium model, a signaling game refined by the undefeated equilibrium endogenizes the choice between pooling and separating offers and provides novel insights under what conditions either payment strategy dominates the other. The results show that non-equivalence depends on economic fundamentals, commitment, and information frictions. Despite adverse selection, first-best consumption can occur for collateralized credit, but not for asset sales, with belief-driven endogenous haircuts and over-collateralization characterizing the </span>terms of trade<span>. An extension incorporating co-existing information-sensitive assets and fiat money<span> sheds new light on portfolio management and diversification under private information and ties optimal payment strategies to </span></span></span>monetary policy.</p></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":null,"pages":null},"PeriodicalIF":1.9000,"publicationDate":"2024-01-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Dynamics & Control","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0165188923002142","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
This paper studies (non-)equivalence of collateralized credit and asset sales in over-the-counter markets subject to commitment and information frictions. Embedded in a search-theoretic general equilibrium model, a signaling game refined by the undefeated equilibrium endogenizes the choice between pooling and separating offers and provides novel insights under what conditions either payment strategy dominates the other. The results show that non-equivalence depends on economic fundamentals, commitment, and information frictions. Despite adverse selection, first-best consumption can occur for collateralized credit, but not for asset sales, with belief-driven endogenous haircuts and over-collateralization characterizing the terms of trade. An extension incorporating co-existing information-sensitive assets and fiat money sheds new light on portfolio management and diversification under private information and ties optimal payment strategies to monetary policy.
期刊介绍:
The journal provides an outlet for publication of research concerning all theoretical and empirical aspects of economic dynamics and control as well as the development and use of computational methods in economics and finance. Contributions regarding computational methods may include, but are not restricted to, artificial intelligence, databases, decision support systems, genetic algorithms, modelling languages, neural networks, numerical algorithms for optimization, control and equilibria, parallel computing and qualitative reasoning.