Flight to What?— ---Dissecting Liquidity Shortage in Financial Crisis

By Feng Dong and Yi Wen, working paper 2017-025. We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle.

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