Liquidity risk and contagion

@inproceedings{Cifuentes2005LiquidityRA,
  title={Liquidity risk and contagion},
  author={Rodrigo A. Cifuentes and Gianluigi Ferrucci and Hyun Song Shin},
  year={2005}
}
This paper explores liquidity risk in a system of interconnected financial institutions when these institutions are subject to regulatory solvency constraints and mark their assets to market. When the market’s demand for illiquid assets is less than perfectly elastic, sales by distressed institutions depress the market prices of such assets. Marking to market of the asset book can induce a further round of endogenously generated sales of assets, depressing prices further and inducing further… CONTINUE READING
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