English, Article, Journal or magazine article edition: Incomplete markets, liquidation risk and the term structure of interest rates Edouard Challe; François Le Grand; Xavier Ragot

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Bookmark: http://trove.nla.gov.au/version/44225
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Incomplete markets, liquidation risk and the term structure of interest rates
Author
  • Edouard Challe
  • François Le Grand
  • Xavier Ragot
Physical Description
  • preprint
Notes
  • We construct a general equilibrium model with incomplete markets and borrowing constraints, in order to study the term structure of real interest rates. Agents are subject to both aggregate and idiosyncratic income shocks, which latter may force them into early portfolio liquidation whilst in recession. We derive a closed-form equilibrium with limited agents heterogeneity (despite market incompleteness), which allows us to derive analytical expressions for bond prices and returns at any maturity. The desirability of bonds as liquidity makes the aggregate bond demand downward-sloping. One consequence of this is that a larger bond supply raises both the level and the slope of the yield curve.
  • RePEc:pse:psecon:2007-49
Language
  • English
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