Public and Private Liquidity Providers

Arnoldo Lopez Marmolejo and Fabrizio Lopez-Gallo

No 1015, Working Papers from BBVA Bank, Economic Research Department

Abstract: The goal of this paper is to explore the benefits of having a private liquidity provider and the conditions under which this lender provides liquidity, when a public liquidity provider is also present. The model proposed incorporates an endogenous interbank lending market so that the decision of a bank to seek liquidity in the interbank market or to turn to the private or the public lender is also endogenous. This framework permits the derivation of conclusions on the size of the private lender, interbank lending conditions and optimal policy for liquidity provision.

Pages: 29 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba
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