Sources of Liquidity and Liquidity Shortages

Wolf Wagner () and Charles Kahn

No 12116, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We investigate a model of liquidity sources that incorporates a general equilibrium feature of liquidity: when banks hold more liquidity, other sectors of the economy hold less of it and will consequently supply less in times of crisis. The private allocation of liquidity is inefficient and optimal liquidity regulation depends on the source of liquidity to which it is applied. Our model also identifies a limited role for public provision of liquidity, arising only when there is a general liquidity shortage in the economy but not if the shortage materializes solely in the banking system.

Keywords: Liquidity sources; Liquidity regulation; Public liquidity (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-ban and nep-mon
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Citations: View citations in EconPapers (2)

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Journal Article: Sources of Liquidity and Liquidity Shortages (2021)
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