On the instability of private intertemporal liquidity provision
The provision of intertemporal liquidity by banks is known to be subject to coordination failures. We establish that asset markets providing intertemporal liquidity are also inherently unstable. These findings challenge the notion of an optimal private provision of liquidity.
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| Published in | Economics letters Vol. 209; p. 110117 |
|---|---|
| Main Authors | , |
| Format | Journal Article |
| Language | English |
| Published |
Amsterdam
Elsevier B.V
01.12.2021
Elsevier Science Ltd |
| Subjects | |
| Online Access | Get full text |
| ISSN | 0165-1765 1873-7374 |
| DOI | 10.1016/j.econlet.2021.110117 |
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| Abstract | The provision of intertemporal liquidity by banks is known to be subject to coordination failures. We establish that asset markets providing intertemporal liquidity are also inherently unstable. These findings challenge the notion of an optimal private provision of liquidity. |
|---|---|
| AbstractList | The provision of intertemporal liquidity by banks is known to be subject to coordination failures. We establish that asset markets providing intertemporal liquidity are also inherently unstable. These findings challenge the notion of an optimal private provision of liquidity. |
| ArticleNumber | 110117 |
| Author | Gehrig, Thomas Dietrich, Diemo |
| Author_xml | – sequence: 1 givenname: Diemo orcidid: 0000-0002-0861-9380 surname: Dietrich fullname: Dietrich, Diemo email: diemo.dietrich@newcastle.ac.uk organization: Newcastle University, Frederick Douglass Centre, 2 Science Square, Newcastle upon Tyne, NE4 5TG, UK – sequence: 2 givenname: Thomas surname: Gehrig fullname: Gehrig, Thomas email: thomas.gehrig@univie.ac.at organization: University of Vienna, Austria |
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| Keywords | D52 Liquidity insurance E22 G21 D15 Instability Overlapping generations Market incompleteness |
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| References | Bryant (b4) 1980; 4 Fulghieri, Rovelli (b6) 1998; 22 Jacklin (b7) 1987 Qi (b8) 1994; 7 Diamond, Dybvig (b5) 1983; 91 Bhattacharya, Padilla (b3) 1996; 9 Bhattacharya, Fulghieri, Rovelli (b2) 1998; 154 Anderson, Khan, Rashid (b1) 1982; 44 Jacklin (10.1016/j.econlet.2021.110117_b7) 1987 Bryant (10.1016/j.econlet.2021.110117_b4) 1980; 4 Diamond (10.1016/j.econlet.2021.110117_b5) 1983; 91 Fulghieri (10.1016/j.econlet.2021.110117_b6) 1998; 22 Anderson (10.1016/j.econlet.2021.110117_b1) 1982; 44 Bhattacharya (10.1016/j.econlet.2021.110117_b3) 1996; 9 Bhattacharya (10.1016/j.econlet.2021.110117_b2) 1998; 154 Qi (10.1016/j.econlet.2021.110117_b8) 1994; 7 |
| References_xml | – volume: 4 start-page: 335 year: 1980 end-page: 344 ident: b4 article-title: A model of reserves, bank runs, and deposit insurance publication-title: J. Bank. Financ. – volume: 91 start-page: 401 year: 1983 end-page: 419 ident: b5 article-title: Bank runs, deposit insurance, and liquidity publication-title: J. Polit. Econ. – volume: 154 start-page: 291 year: 1998 end-page: 319 ident: b2 article-title: Financial intermediation versus stock markets in a dynamic intertemporal model publication-title: J. Inst. Theor. Econ. (JITE) / Z. Gesamte Staatswissenschaft – volume: 22 start-page: 1157 year: 1998 end-page: 1180 ident: b6 article-title: Capital markets, financial intermediaries, and liquidity supply publication-title: J. Bank. Financ. – volume: 7 start-page: 389 year: 1994 end-page: 417 ident: b8 article-title: Bank liquidity and stability in an overlapping generations model publication-title: Rev. Financ. Stud. – volume: 9 start-page: 1003 year: 1996 end-page: 1032 ident: b3 article-title: Dynamic banking: A reconsideration publication-title: Rev. Financ. Stud. – start-page: 26 year: 1987 end-page: 47 ident: b7 article-title: Demand deposits, trading restrictions, and risk sharing publication-title: Contractual Arrangements for Intertemporal Trade – volume: 44 start-page: 473 year: 1982 end-page: 475 ident: b1 article-title: Approximate equilibria with bounds independent of preferences publication-title: Rev. Econom. Stud. – start-page: 26 year: 1987 ident: 10.1016/j.econlet.2021.110117_b7 article-title: Demand deposits, trading restrictions, and risk sharing – volume: 44 start-page: 473 year: 1982 ident: 10.1016/j.econlet.2021.110117_b1 article-title: Approximate equilibria with bounds independent of preferences publication-title: Rev. Econom. Stud. doi: 10.2307/2297370 – volume: 9 start-page: 1003 issue: 3 year: 1996 ident: 10.1016/j.econlet.2021.110117_b3 article-title: Dynamic banking: A reconsideration publication-title: Rev. Financ. Stud. doi: 10.1093/rfs/9.3.1003 – volume: 4 start-page: 335 issue: 4 year: 1980 ident: 10.1016/j.econlet.2021.110117_b4 article-title: A model of reserves, bank runs, and deposit insurance publication-title: J. Bank. Financ. doi: 10.1016/0378-4266(80)90012-6 – volume: 91 start-page: 401 issue: 3 year: 1983 ident: 10.1016/j.econlet.2021.110117_b5 article-title: Bank runs, deposit insurance, and liquidity publication-title: J. Polit. Econ. doi: 10.1086/261155 – volume: 154 start-page: 291 issue: 1 year: 1998 ident: 10.1016/j.econlet.2021.110117_b2 article-title: Financial intermediation versus stock markets in a dynamic intertemporal model publication-title: J. Inst. Theor. Econ. (JITE) / Z. Gesamte Staatswissenschaft – volume: 22 start-page: 1157 issue: 9 year: 1998 ident: 10.1016/j.econlet.2021.110117_b6 article-title: Capital markets, financial intermediaries, and liquidity supply publication-title: J. Bank. Financ. doi: 10.1016/S0378-4266(98)00053-3 – volume: 7 start-page: 389 issue: 2 year: 1994 ident: 10.1016/j.econlet.2021.110117_b8 article-title: Bank liquidity and stability in an overlapping generations model publication-title: Rev. Financ. Stud. doi: 10.1093/rfs/7.2.389 |
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| SubjectTerms | Assets Banking industry Coordination Instability Liquidity Liquidity insurance Market incompleteness Mutual funds Overlapping generations |
| Title | On the instability of private intertemporal liquidity provision |
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