Liquidity provision during a pandemic

Wolf Wagner and Charles Kahn

No 14701, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine how public liquidity should be distributed to firms when immediate production entails externalities, such as by spreading a virus. Direct provision of liquidity can address externalities, but traditional distribution of liquidity (through banks) has informational advantages. We show that which mode is preferred is determined by the variance (but not the level) of firm characteristics in the economy. Traditional provision is always part of the optimal policy when liquidity modes can be combined, and involves promising low interest rates for when the pandemic is over in order to incentivize temporary production shutdowns at firms.

Keywords: Public liquidity; Banks; Covid-10; Mothballing (search for similar items in EconPapers)
JEL-codes: G20 G28 G31 I18 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://cepr.org/publications/DP14701 (application/pdf)

Related works:
Journal Article: Liquidity provision during a pandemic (2021)
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:cpr:ceprdp:14701

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14701

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().