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| Author: | Huang, J. Wang, J. |
| Title: | Market liquidity, asset prices, and welfare |
| Journal: | Journal of Financial Economics
2010 : JAN, VOL. 95:1, p. 107-127 |
| Index terms: | central banks policy supply and demand models asset valuation prices liquidity welfare |
| Language: | eng |
| Abstract: | In this paper, an equilibrium model is represented for the demand and supply of liquidity (here as: liq-ty.) with the impact on asset prices and welfare. It is shown that, when constant market presence is costly, purely idiosyncratic shocks lead to endogenous demand of liq-ty. and large price deviations from fundamentals. Furthermore, market forces fail to lead to efficient supply of liq-ty., calling for potential policy interventions. However, it is shown that different policy tools can produce different efficiency consequences. |
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