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2010) “A Model of Financial Market Liquidity Based on Intermediary Capital

By Denis Gromb and Dimitri Vayanos

Abstract

We present a model of financial market liquidity provided by financially constrained intermediaries. We show that market liquidity increases with the level of intermediary capital. We also characterize conditions under which intermediaries play a stabilizing or destabilizing role in markets. Finally, we sketch a number of areas, including welfare and public policy, on which the model can shed light

Topics: Financial crises, financial constraints, arbitrage, liquidity, amplification, contagion, welfare, public policy
Year: 2013
OAI identifier: oai:CiteSeerX.psu:10.1.1.307.340
Provided by: CiteSeerX
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