A model of financial market liquidity based on intermediary capital
Gromb, D. & Vayanos, D.
(2010).
A model of financial market liquidity based on intermediary capital.
Journal of the European Economic Association,
8(2-3), 456-466.
https://doi.org/10.1111/j.1542-4774.2010.tb00516.x
(2010).
A model of financial market liquidity based on intermediary capital.
Journal of the European Economic Association,
8(2-3), 456-466.
https://doi.org/10.1111/j.1542-4774.2010.tb00516.x
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.