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The Maturity Rat Race / Markus K. Brunnermeier, Martin Oehmke.
- Format:
- Book
- Author/Creator:
- Brunnermeier, Markus K.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w16607.
- NBER working paper series no. w16607
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2010.
- Summary:
- We develop a model of endogenous maturity structure for financial institutions that borrow from multiple creditors. We show that a maturity rat race can occur: an individual creditor can have an incentive to shorten the maturity of his own loan to the institution, allowing him to adjust his financing terms or pull out before other creditors can. This, in turn, causes all other lenders to shorten their maturity as well, leading to excessively short-term financing. This rat race occurs when interim information is mostly about the probability of default rather than the recovery in default, and is most pronounced during volatile periods and crises. Overall, firms are exposed to unnecessary rollover risk.
- Notes:
- Print version record
- December 2010.
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