scholarly journals Private and public liquidity provision in over‐the‐counter markets

2020 ◽  
Vol 15 (4) ◽  
pp. 1669-1712
Author(s):  
David M. Arseneau ◽  
David E. Rappoport W. ◽  
Alexandros P. Vardoulakis
Keyword(s):  
Dynamic Model ◽  
Market Liquidity ◽  
Quantitative Easing ◽  
Transmission Channel ◽  
Public Provision ◽  
Over The Counter ◽  
Liquidity Provision ◽  
Private And Public ◽  
Trade Frictions ◽  
Liquidity Premia

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.

A note on liquidity policies and financial networks

2019 ◽  
Vol 11 (3) ◽  
pp. 451-456
Author(s):  
Danilo Lopomo Beteto Wegner
Keyword(s):  
Central Bank ◽  
Design Methodology ◽  
Banking System ◽  
Market Liquidity ◽  
Financial Networks ◽  
Bank Failures ◽  
Quantitative Easing ◽  
Content Type ◽  
Net Worth ◽  
Liquidity Provision

Purpose This paper aims to provides an example of how government and central bank policies that promote market liquidity (e.g., quantitative easing programs) can change the structure of the banking system. Design/methodology/approach The nexus between liquidity policies and financial networks is addressed through an example that captures stylized features of the interbank market. In the example discussed, two scenarios are considered: one with and another without central bank/government liquidity provision, leading to two different network structures that are then used to study the likelihood of contagion. Findings The example provided shows that government and central bank policies that promote market liquidity can lead to financial networks that are better capitalized (net worth of the banking system is higher) but, at the same time, more fragile (higher likelihood of bank failures). Originality/value To the best of the author’s knowledge, this is the first attempt to model the formation of a financial network with an explicit mechanism accounting for government and central bank policies that affect market liquidity, which, in turn, could be interpreted as a quantitative easing program.

Book Reviews

2012 ◽  
Vol 50 (2) ◽  
pp. 529-532
Keyword(s):  
Massachusetts Institute Of Technology ◽  
Closed Economy ◽  
Public Provision ◽  
Secondary Markets ◽  
Asset Pricing Model ◽  
Liquidity Provision ◽  
Northwestern University ◽  
Liquidity Premia ◽  
Institute Of Technology

Arvind Krishnamurthy of Kellogg School of Management, Northwestern University and NBER reviews “Inside and Outside Liquidity” by Bengt Holmstrom and Jean Tirole. The EconLit abstract of the reviewed work begins: Explores the demand for, and supply of, liquid assets from a modern corporate finance perspective. Discusses leverage; a simple model of liquidity demand; aggregate liquidity shortages and liquidity premia; a liquidity asset pricing model; public provision of liquidity in a closed economy; liquidity provision with access to global capital markets; financial muscle and overhoarding of liquidity; and specialized inputs and secondary markets. Holmstrom is Paul A. Samuelson Professor of Economics at the Massachusetts Institute of Technology. Tirole is Scientific Director of the Institut d'Economie Industrielle and Chairman of the Board of the Toulouse School of Economics. Bibliography; index.

scholarly journals Private and Public Liquidity Provision in Over-the-Counter Markets

2017 ◽  
Vol 2017 (033) ◽  
Author(s):  
David M. Arseneau ◽  
◽  
David E. Rappoport ◽  
Alexandros P. Vardoulakis ◽  
◽  
...  
Keyword(s):  
Over The Counter ◽  
Liquidity Provision ◽  
Private And Public

Regulate in Haste, Repent at Leisure: Private and Public Orderings in OTC Derivatives Markets

2020 ◽  
Author(s):  
Craig Pirrong
Keyword(s):  
Financial Crisis ◽  
Functional Approach ◽  
Over The Counter ◽  
Otc Derivatives ◽  
Private And Public ◽  
Derivatives Markets

Over-the-counter derivatives were widely blamed for causing or exacerbating the financial crisis. As a result of perceived structural failings in these markets, legislators and regulators mandated substantial changes. The most notable of these changes was a requirement that most derivatives be centrally cleared. Under clearing, a central counterparty becomes a party to all contracts and guarantees performance on them. These mandates were predicated on a defective understanding of the economics of derivatives markets. The proposed reforms were fundamentally flawed because they were rooted in an institutional, rather than functional, approach to regulation.

scholarly journals Transmission mechanisms in Japan’s quantitative easing policy (2001–2006)

2017 ◽  
Vol 6 (2) ◽  
pp. 35 ◽  
Author(s):  
Hiroyuki Ijiri
Keyword(s):  
Bank Lending ◽  
Var Model ◽  
Quantitative Easing ◽  
Time Varying ◽  
Transmission Channel ◽  
Bank Lending Channel ◽  
Monthly Data ◽  
Lending Channel ◽  
Transmission Mechanisms ◽  
Time Varying Parameter

This study investigates exchange rates and bank lending as the transmission channels for Japan’s Quantitative Easing Policy (QEP) during 2001–2006. Using a Time Varying Parameter-VAR model and monthly data to analyze the dynamism of the QEP, this study is the first to show that the exchange rate channel was the effective QEP transmission channel after around 2005, while the bank lending channel was inactive.

Self Supply

2021 ◽  
Author(s):  
Sally Sutton ◽  
John Butterworth
Keyword(s):  
Universal Access ◽  
Cost Effective ◽  
Sub Saharan Africa ◽  
Full Potential ◽  
Public Provision ◽  
Middle Income ◽  
Private And Public ◽  
Access To Water ◽  
Sub Saharan ◽  
Water Provision

While governments and development partners focus on improving community and utility-managed water supplies to ensure access for all, hundreds of millions of people are taking actions to supply their own water. In the WASH sector household investment in construction and improvement of facilities is widely employed in sanitation but in water similar efforts are ignored. Recognition of the contribution of self-supply towards universal access to water and its full potential, is hampered by a lack of data, analysis and guidance. This well-reasoned source book highlights the magnitude of the contribution of self-supply to urban and rural water provision world-wide, and the gains that are possible when governments recognise and support household-led supply development and up-grading. With limited public finances in low- (and many middle-) income countries, self-supply can fill gaps in public provision, especially amongst low-density rural populations. The book focuses on sub-Saharan Africa as the region with the greatest predicted shortfall in achieving the 2030 Sustainable Development Goal for water. Household supplies can be created, or accelerated to basic or safely managed levels, through approaches that build on the investment and actions of families, with the availability of technology options and cost-effective support from the private and public sectors. The role of self-supply needs greater recognition and a change in mindset of governments, development partners and practitioners if water services are to be extended to all and no-one is to be left behind.

Even gradual quantitative tightening raises GDP risks

2019 ◽  
Keyword(s):  
Euro Area ◽  
Commercial Banks ◽  
Large Scale ◽  
Sales Tax ◽  
Quantitative Easing ◽  
Content Type ◽  
Balance Sheets ◽  
Liquidity Provision ◽  
The Us ◽  
Repurchase Agreements

Subject Quantitative easing and GDP. Significance The US Federal Reserve (Fed), Bank of Japan (BoJ) and ECB have all conducted quantitative easing (QE) programmes since 2008, purchasing assets from commercial banks on a large scale and without predefined repurchase agreements. These purchases have swollen the balance sheets of the three largest central banks and provided commercial banks with large liquidity buffers. Impacts The pace of the Fed withdrawing liquidity may slow; if US-China conflict worsens or another shock occurs, the Fed may consider reversing. In the euro-area, there are no new liquidity provisions, at a time when German GDP is weakening and Brexit threatens EU growth. New liquidity-provision plans may be hard for the euro-area to agree; if this is off the table, so are liquidity-withdrawing measures. The BoJ may stop scaling back its bond and ETF holdings if markets suffer; the upcoming sales tax rise will also hit spending.

scholarly journals Expectations and the quantitative easing in Eurozone

2018 ◽  
Vol 7 (1) ◽  
pp. 18
Author(s):  
Nicholas Apergis
Keyword(s):  
Financial Markets ◽  
Stock Prices ◽  
Regression Method ◽  
Quantitative Easing ◽  
Transmission Channel ◽  
Labor Market Conditions ◽  
Economic Productivity ◽  
Switching Dynamic ◽  
The 2008 Financial Crisis ◽  
Primary Transmission

The European economy suffered from both the 2008 financial crisis and the debt sovereign crisis of certain of its members and then experienced a period of quantitative easing (QE) starting in 2015. The goal of this study is to explore the direct and exclusive effects of this rather unconventional monetary policy on financial markets, economic activity, and labor markets across the Eurozone. The analysis employs the Markov-switching dynamic regression method. The findings illustrate the reduction of short- and log-term credit spreads, increased stock prices, improved market expectations, recovered labor market conditions and economic productivity, while the primary transmission channel of the QE policy is the expectations channel.

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