Fire Sales in Finance and Macroeconomics

37 Pages Posted: 27 Dec 2010 Last revised: 23 Jun 2023

See all articles by Andrei Shleifer

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: December 2010

Abstract

Fire sales are forced sales of assets in which high-valuation bidders are sidelined, typically due to debt overhang problems afflicting many specialist bidders simultaneously. We overview theoretical and empirical research on asset fire sales, which shows how they can arise, how they can lead to asset under-valuations, how contracts and bankruptcy regimes adjust to the risk of fire sales, how fire sales can lead to downward spirals or cascades in asset prices, how arbitrage fails in the presence of fire sales, and how fire sales can reduce productive investment. We conclude by showing how asset fire sales shed light on several aspects of the recent financial crisis, and can account for the success of the liquidity provision and asset purchase policies of the Federal Reserve.

Suggested Citation

Shleifer, Andrei and Vishny, Robert W., Fire Sales in Finance and Macroeconomics (December 2010). NBER Working Paper No. w16642, Available at SSRN: https://ssrn.com/abstract=1730028

Andrei Shleifer (Contact Author)

Harvard University - Department of Economics ( email )

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Robert W. Vishny

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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