eprintid: 3228 rev_number: 24 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/00/32/28 datestamp: 2012-01-18 06:00:27 lastmod: 2021-04-02 15:36:11 status_changed: 2016-12-08 12:48:19 type: monograph metadata_visibility: no_search creators_name: Tirole, Jean creators_idrefppn: 028736036 creators_affiliation: University of Toulouse Capitole title: Illiquidity and All Its Friends ispublished: pub subjects: subjects_ECO abstract: The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macroprudential policies. date: 2009-09-12 date_type: published publisher: TSE Working Paper official_url: http://tse-fr.eu/pub/21959 faculty: tse divisions: tse language: en has_fulltext: TRUE subjectsJEL: JEL_E44 subjectsJEL: JEL_E52 subjectsJEL: JEL_G28 physical_desc: 42 view_date_year: 2009 full_text_status: public monograph_type: working_paper series: TSE Working Paper volume: 09-083 institution: Université Toulouse Capitole department: Toulouse School of Economics book_title: TSE Working Paper oai_identifier: oai:tse-fr.eu:21959 harvester_local_overwrite: oai_set harvester_local_overwrite: department harvester_local_overwrite: faculty harvester_local_overwrite: site harvester_local_overwrite: place_of_pub harvester_local_overwrite: pages harvester_local_overwrite: institution harvester_local_overwrite: creators_idrefppn oai_lastmod: 2016-12-05T15:53:41Z oai_set: tse oai_set: ut1c site: ut1 citation: Tirole, Jean (2009) Illiquidity and All Its Friends. TSE Working Paper, n. 09-083 document_url: https://publications.ut-capitole.fr/id/eprint/3228/1/tirole_3228.pdf