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Woon Gyu Choi is a Senior Economist at the IMF Institute of the International Monetary Fund. David Cook is an Associate Professor of Economics at the Hong Kong University of Science and Technology. We thank Enrica Detragiache, Burkhard Drees, and Ling Hui Tan for useful comments and suggestions.
Holmstrom and Tirole (1997) construct a model of bank liquidity based on an asymmetric information channel. Following Kiyotaki and Moore (1997), another strand of the literature on imperfect financial markets emphasizes the role of collateral constraints: for example, Chen (2001) examines the impact of asset price declines when the domestic banking system faces collateral constraints