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A note on Chui, Gai and Haldane's "Sovereign liquidity crisis: Analytics and implications for public policy"

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  • Dreisbach, Dina
  • Kindermann, Fabian

Abstract

This note corrects the welfare calculations in Chui, Gai and Haldane's paper on sovereign liquidity crisis [Chui, M., Gai, P., Haldane, A.G., 2002. Sovereign liquidity crisis: Analytics and implications for public policy. Journal of Banking and Finance 26, 519-544]. We show that the exact formula not only dramatically reduces the computed welfare consequences from 66% of ex-ante expected output to roughly 13%, but also changes the direction of some reported comparative static results. In addition, we clarify the difference between fundamentals-driven and belief-driven welfare costs and extend some of the sensitivity calculations.

Suggested Citation

  • Dreisbach, Dina & Kindermann, Fabian, 2008. "A note on Chui, Gai and Haldane's "Sovereign liquidity crisis: Analytics and implications for public policy"," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 624-629, April.
    • Handle: RePEc:eee:jbfina:v:32:y:2008:i:4:p:624-629
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    References listed on IDEAS

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    1. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-597, June.
    2. Chui, Michael & Gai, Prasanna & Haldane, Andrew G., 2002. "Sovereign liquidity crises: Analytics and implications for public policy," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 519-546, March.
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