A MODEL OF FINANCIAL MARKET LIQUIDITY BASED ON INTERMEDIARY CAPITAL

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Publication Details

Output type: Other

Author list: Gromb D, Vayanos D

Publisher: Oxford University Press

Publication year: 2010

Journal: Journal of European Economic Association (1542-4766)

Volume number: 8

Issue number: 2-3

Start page: 456

End page: 466

Number of pages: 11

ISSN: 1542-4766

eISSN: 1542-4774

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://personal.lse.ac.uk/vayanos/Papers/MFMLBIC_JEEA10.pdf

Abstract

We present a model of financial market liquidity provided by financially constrained intermediaries. We show that market liquidity increases with the level of intermediary capital. We also characterize conditions under which intermediaries play a stabilizing or destabilizing role in markets. Finally, we sketch a number of areas, including welfare and public policy, on which the model can shed light. (JEL: G01, G11, G12, G15, G18)

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