Liquidity risk, market power and the informational effects of policy

A structural approach is utilized to examine liquidity risk across Chilean financial institutions, according to a study. Researchers can determine how policy affects risk by integrating open market bidding data with macroeconomic data. Unexpected foreign reserve buildup and interest rate shocks appear to considerably influence assumptions about future liquidity shocks. Market power must also be considered when assessing macroeconomic policy’s communication route.

Image courtesy of interviewee. December 20, 2023

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