Efficiency, Risk and the Gains from Trade in Interbank Markets
(joint with Matthias Hoelzlein and Jens Orben)Submitted
Abstract: We propose a model of the financial sector that captures complex relationships between highly heterogeneous agents in the market for loanable interbank funds and develops the bank-to-bank component of the macroeconomics financial transmission channel. Financial institutions trade funds due to heterogeneous capacity to provide liquidity, but trade is subject to frictions and uncertainty. The model provides a tractable framework to study the trade-off between efficiency and volatility in the financial sector, and its contribution to business cycles fluctuations.
Recommended citation: Dordal i Carreras, Marc, Matthias Hoelzlein, and Jens Orben. “Efficiency, Risk and the Gains from Trade in Interbank Markets.” Working Paper (2024). http://marcdordal.github.io/files/WP_Trade_Model_Banks.pdf