Incomplete markets, liquidation risk, and the term structure of interest rates

• 成果类型: Article
• 署名作者: Challe, Edouard; Le Grand, Francois; Ragot, Xavier
• 署名单位: Centre National de la Recherche Scientifique (CNRS); Institut Polytechnique de Paris; Ecole Polytechnique; emlyon business school; Swiss Federal Institutes of Technology Domain; ETH Zurich
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.10.003
• 发表日期: 2013
• 页码: 2483-2519
• 关键词: Incomplete markets; Borrowing constraint; yield curve

摘要

We analyse the term structure of interest rates in a general equilibrium model with incomplete markets, borrowing constraint, and positive net supply of government bonds. Uninsured idiosyncratic shocks generate bond trades, while aggregate shocks cause fluctuations in the trading price of bonds. Long bonds command a liquidation risk premium over short bonds, because they may have to be liquidated before maturity following a bad idiosyncratic shock precisely when their resale value is low due to the simultaneous occurrence of a bad aggregate shock. Our framework endogenously generates limited cross-sectional wealth heterogeneity among the agents (despite the presence of uninsured idiosyncratic shocks), which allows us to characterise analytically the shape of the entire yield curve, including the yields on bonds of arbitrarily long maturities. Agents' desire to hedge the idiosyncratic risk together with their fear of having to liquidate long bonds at unfavourable terms implies that a greater bond supply raises the level of the yield curve, while an increase in the relative supply of long bonds raises its slope. (C) 2013 Elsevier Inc. All rights reserved.