Managing Liquidity

Zhixiong Zeng and Yi Jin ()
Additional contact information
Yi Jin: Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu 611130, China

Management Science, 2023, vol. 69, issue 9, 5578-5595

Abstract: This paper studies how liquidity management affects asset markets and aggregate economic performance. We explore the connection between liquidity allocation and capital allocation. The policy that changes the liquidity premia on assets has broad implications for private-sector behavior and market efficiency. Liquidity tightening, that is, a reduction in the aggregate quantity of liquid debt, is associated with credit loosening, that is, an increase in funds raised through the issuance of private liquid debt. A positive liquidity premium on debt is required for capital-allocation efficiency, while a zero-liquidity premium is required for liquidity-allocation efficiency. The optimal policy balances these two considerations. Government purchase of private debt is needed to support low interest rates. The analysis is extended to incorporate the liquidity differential between public and private debt and partially liquid capital.

Keywords: liquidity premium; misallocation; debt (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2022.4559 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:9:p:5578-5595

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().