Inside and Outside Liquidity

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Includes delivery to Finland. Check for new and used marketplace copies. Two leading economists develop a theory explaining the demand for and supply of liquid assets.

Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively?

These questions are at the center of all financial crises, including the current global one.

Inside and Outside Liquidity

In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.

Skip Navigation and go to main content Bestsellers Books. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages.


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In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions. Publication Date: January 7, List Price: Bengt Holmstrom is Paul A.

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