Monday, February 22, 2010

Some Readings on Liquidity, Leverage and Crisis

In an earlier post I mentioned an interview with Eric Maskin in which he claimed that "most of the pieces for understanding the current financial mess were in place well before the crisis occurred," and identified five contributions that in his view were particularly insightful. 
Along similar lines, Yeon-Koo Che has assembled a weekly reading group consisting of faculty and graduate students in the Columbia community to discuss articles that might be helpful in shedding light on recent events. Included among these is a paper by John Geanakoplos that I have surveyed previously on this blog, and several that I hope to discuss in the future. Ten of the contributions we hope to tackle over the coming weeks are the following:
  1. Financial Intermediation, Loanable Funds and the Real Sector by Holmstrom and Tirole
  2. The Limits of Arbitrage by Shleifer and Vishny
  3. Understanding Financial Crises by Allen and Gale
  4. Credit-Worthiness Tests and Interbank Competition by Broeker
  5. Credit Cycles by Kiyotaki and Moore
  6. The Leverage Cycle by Geanakoplos
  7. Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts by Farhi and Tirole
  8. Liquidity and Leverage by Adrian and Shin
  9. Market Liquidity and Funding Liquidity by Brunnermeir and Pedersen
  10. Outside and Inside Liquidity by Bolton, Santos and Scheinkman
I would welcome any comments on these, or suggestions for others that we may have overlooked.


  1. Hi Rajiv,

    The Fed's article on Primary Dealer Credit Facility is a good compliment on the Adrian and Shin article you mentioned. In fact, Adrian is one of the authors.

  2. Ramanan, thanks, this is helpful.

  3. Rajiv, Kaushik Basu has an interesting working paper "The Financial Crisis of 2007-2009." He models the idea that the provision of credit is more likely when others are providing credit, so that there are multiple equilibria. The link is

  4. Thanks Kevin, I'll take a look.