Private and public liquidity provision in over-the-counter markets

• 成果类型: Article
• 署名作者: Arseneau, David M.; Rappoport, David E. W.; Vardoulakis, Alexandros P.
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: THEORETICAL ECONOMICS
• ISSN/ISSBN: 1933-6837
• DOI: 10.3982/TE3419
• 发表日期: 2020-11-01
• 页码: 1669-1712
• 关键词: Liquidity provision; market liquidity; over-the-counter markets; quantitative easing; quantitative tightening; monetary policy normalization

摘要

We show that trade frictions in over-the-counter (OTC) markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient due to a congestion externality operating through market liquidity in the OTC market. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best, providing a rationale for the regulation and public provision of liquidity. Moreover, our model characterizes a transmission channel of quantitative easing or tightening that operates through liquidity premia.