Discussion Paper Details

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Title: On the Instability of Private Intertemporal Liquidity Provision

Author(s): Diemo Dietrich and Thomas Gehrig

Publication Date: September 2021

Keyword(s): incomplete markets, Instability and Liquidity Provision

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Dietrich, D and Gehrig, T. 2021. 'On the Instability of Private Intertemporal Liquidity Provision'. London, Centre for Economic Policy Research.