Lemons and Money Market

Ewerhart, Christian; Feubli, Patricia

doi:10.2139/ssrn.1540478

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Lemons and Money Market

Swiss Finance Institute Research Paper No. 10-04

37 Pages Posted: 27 Jan 2010

See all articles by Christian Ewerhart

Christian Ewerhart

University of Zurich, Department of Economics

Patricia Feubli

University of Zurich

Date Written: November 18, 2009

Abstract

This paper identifies simple conditions for monotone comparative statics of a unique equilibrium in the Akerlof-Wilson model. Separate conditions apply to trade volume and price. Trade volume increases when supply becomes both stronger and more elastic. In contrast, price decreases when supply becomes both stronger and less elastic. An application to the interbank market suggests surprisingly specific measures to address elevated term rates and market breakdown.

Keywords: Adverse Selection, Uniqueness of Equilibrium, Monotone Comparative Statics, Elasticity of Supply, Log-Supermodularity, Log-Concavity, Interbank Markets

JEL Classification: D82, G21, G01

Suggested Citation: Suggested Citation

Ewerhart, Christian and Feubli, Patricia, Lemons and Money Market (November 18, 2009). Swiss Finance Institute Research Paper No. 10-04, Available at SSRN: https://ssrn.com/abstract=1540478 or http://dx.doi.org/10.2139/ssrn.1540478