On the Instability of Private Intertemporal Liquidity Provision
14 Pages Posted: 22 Sep 2021
Date Written: September 2021
Abstract
We establish that the provision of intertemporal liquidity is fundamentally prone to instability. Not only are banks subject to coordination failures but also asset markets are inherently unstable. These findings challenge the notion of optimal private provision of liquidity.
Keywords: incomplete markets, Instability, Liquidity Provision
JEL Classification: D15, D52, E22, G21
Suggested Citation: Suggested Citation
Dietrich, Diemo and Gehrig, Thomas, On the Instability of Private Intertemporal Liquidity Provision (September 2021). CEPR Discussion Paper No. DP16528, Available at SSRN: https://ssrn.com/abstract=3928839
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