Liquidity Fluctuations in Over‐the‐Counter Markets

Liquidity and Economic Fluctuations∗

This paper studies the relationship between liquidity and economic fluctuations when firms select the number of bonds they issue to finance investment opportunities on which they have private information. The dynamic of bond issuance and security design is the driving force delivering all the main results. First, the analysis provides a theoretical framework in which liquidity, investment and t...

Liquidity in Frictional Asset Markets

Banks, Markets and Liquidity

The banking sector is one of the most highly regulated sectors in the economy. However, in contrast to other regulated sectors there is no wide agreement on the market failures that justify regulation. We suggest that there are two important failures. The fi rst is a coordination problem that arises because of multiple equilibria. If people believe there is going to be a panic then that can be ...

Pricing Liquidity in Electronic Markets

Liquidity Constrained Markets versus Debt Constrained Markets

This paper compares two different models in a common environment. The first model has liquidity constraints in that consumers save a single asset that they cannot sell short. The second model has debt constraints in that consumers cannot borrow so much that they would want to default, but is otherwise a standard complete markets model. Both models share the features that individuals are unable ...