Abstract

https://ssrn.com/abstract=1570504
 
 

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Sources of Liquidity and Liquidity Shortages


Charles M. Kahn


University of Illinois, Urbana-Champaign; Feseral Reserve Bank of Saint Louis; Bank of Canada

Wolf Wagner


Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

October 14, 2013

AFA 2012 Chicago Meetings Paper

Abstract:     
We consider a model of liquidity sources that incorporates the general equilibrium nature of liquidity: when banks hold more liquidity, other sectors of the economy will hold less of it and supply lower amounts in times of crisis. The equilibrium allocation of liquidity across sectors is inefficient and optimal liquidity regulation depends on the source of liquidity to which it is applied. Our model of liquidity sources 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.

Number of Pages in PDF File: 35

Keywords: liquidity sources, liquidity regulation, public liquidity

JEL Classification: G21, G28


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Date posted: February 28, 2011 ; Last revised: December 14, 2013

Suggested Citation

Kahn, Charles M. and Wagner, Wolf, Sources of Liquidity and Liquidity Shortages (October 14, 2013). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1570504 or http://dx.doi.org/10.2139/ssrn.1570504

Contact Information

Charles M. Kahn
University of Illinois, Urbana-Champaign ( email )
Department of Finance
340 Wohlers Hall
Champaign, IL 61820
United States
HOME PAGE: http://kahnfrance.com/cmk/
Feseral Reserve Bank of Saint Louis
411 Locust St
Saint Louis, MO 63011
United States
Bank of Canada
234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
Wolf Wagner (Contact Author)
Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )
P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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