DP16528 On the Instability of Private Intertemporal Liquidity Provision
|Author(s):||Diemo Dietrich, Thomas Gehrig|
|Publication Date:||September 2021|
|Keyword(s):||incomplete markets, Instability, Liquidity Provision|
|JEL(s):||D15, D52, E22, G21|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16528|
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.