Leaning against the wind

• 成果类型: Article
• 署名作者: Weill, Pierre-Olivier
• 署名单位: University of California System; University of California Los Angeles
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1111/j.1467-937X.2007.00451.x
• 发表日期: 2007
• 页码: 1329-1354
• 关键词: search equilibrium; MARKET; middlemen; liquidity; INFORMATION; runs

摘要

During financial disruptions, market makers provide liquidity by absorbing external selling pressure. They buy when the pressure is large, accumulate inventories, and sell when the pressure alleviates. This paper studies optimal dynamic liquidity provision in a theoretical market setting with large and temporary selling pressure and order-execution delays. I show that competitive market makers offer the socially optimal amount of liquidity, provided they have access to sufficient capital. If raising capital is costly, this suggests a policy role for lenient central bank lending during financial disruptions.