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Liquidity risk, market power and the informational effects of policy

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  • Claeys, Grégory
  • Papioti, Chara
  • Tryphonides, Andreas

Abstract

Using a structural approach, we combine bidding data from open market operations with macroeconomic information to recover the latent distribution of liquidity risk across financial institutions in Chile and how it is affected by policy. We find that unanticipated shocks to foreign reserve accumulation and interest rates have significant effects on aggregate beliefs about a liquidity shock in the near future. We demonstrate that accounting for market power is important for measuring the strength of this informational channel of macroeconomic policy.

Suggested Citation

  • Claeys, Grégory & Papioti, Chara & Tryphonides, Andreas, 2023. "Liquidity risk, market power and the informational effects of policy," Journal of International Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:inecon:v:142:y:2023:i:c:s0022199623000181
    DOI: 10.1016/j.jinteco.2023.103732
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    More about this item

    Keywords

    Multi-unit auction; Liquidity risk; Signalling effects of macroeconomic policy;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F30 - International Economics - - International Finance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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