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ON THE ROLE OF UNCERTAINTY AND ILLIQUIDITY IN FINANCIAL MARKETS: POSTWAR BANKING INNOVATION IN THE UNITED STATES
Abstract
This thesis develops a microeconomic and financial-markets analysis of innovations in liability instruments by U.S. banking firms in the 1960-1985 period. At the microeconomic level, innovations are conceptualized as arising from either situation of opportunity or adversity on the part of banking firms. There is particular attention to the problem of banking-firm adversity, which occurs when banking firms with illiquid balance-sheets due to maturity-transformation confront unanticipatedly high interest-rate outcomes in segmented borrowing markets. Econometric evidence is produced which supports the notion of banking-firm adversity as an element of banks' loan-market behavior. An asset-substitution model of financial markets is developed which explicitly incorporates bank illiquidity and market segmentation; this model is capable of producing the interest rate "spikes" which have often spurred bank innovation in the past 25 years.
Subject Area
Economics
Recommended Citation
DYMSKI, GARY ARTHUR, "ON THE ROLE OF UNCERTAINTY AND ILLIQUIDITY IN FINANCIAL MARKETS: POSTWAR BANKING INNOVATION IN THE UNITED STATES" (1987). Doctoral Dissertations Available from Proquest. AAI8727042.
https://scholarworks.umass.edu/dissertations/AAI8727042