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A Note on Liquidity Risk Management


Markus K. Brunnermeier


Princeton University - Department of Economics

Motohiro Yogo


Federal Reserve Bank of Minneapolis

January 16, 2009

American Economic Review, Vol. 99, No. 2, 2009

Abstract:     
When a firm is unable to roll over its debt, it may have to seek more expensive sources of financing or even liquidate its assets. This paper provides a normative analysis of minimizing such rollover risk, through the optimal dynamic choice of the maturity structure of debt. The objective of a firm with long-term assets is to maximize the effective maturity of its liabilities across several refinancing cycles, rather than to maximize the maturity of the current bonds outstanding. An advantage of short-term financing is that a firm, while in good financial health, can readjust its maturity structure more quickly in response to changes in its asset value.

Number of Pages in PDF File: 13

Keywords: Funding liquidity, Hedging, Maturity structure, Risk management

JEL Classification: G32, G33

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Date posted: January 19, 2009 ; Last revised: June 17, 2009

Suggested Citation

Brunnermeier, Markus K. and Yogo, Motohiro, A Note on Liquidity Risk Management (January 16, 2009). American Economic Review, Vol. 99, No. 2, 2009. Available at SSRN: http://ssrn.com/abstract=1329132

Contact Information

Markus Konrad Brunnermeier
Princeton University - Department of Economics ( email )
Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)
HOME PAGE: http://www.princeton.edu/¡­markus

Motohiro Yogo (Contact Author)
Federal Reserve Bank of Minneapolis ( email )
90 Hennepin Avenue
Minneapolis, MN 55401-1804
United States
HOME PAGE: http://https://sites.google.com/site/motohiroyogo/
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