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Optimal Liquidity Provision and Dynamic Incentive Compatibility

Author

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  • Ernst-Ludwig VON THADDEN

Abstract

The paper analyses the problem of optimal liquidity provision in simple continuous-time general-equilibrium model under uncertainty. It argues that liquidity provision is subject to moral-hazard problems due to the unobservebility of households' characteristics and characterizes incentive-compatible deposit contracts as second mechanisms to provide liquidity.

Suggested Citation

  • Ernst-Ludwig VON THADDEN, 1996. "Optimal Liquidity Provision and Dynamic Incentive Compatibility," Cahiers de Recherches Economiques du Département d'économie 9604, Université de Lausanne, Faculté des HEC, Département d’économie.
    • Handle: RePEc:lau:crdeep:9604
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    Citations

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    Cited by:

    1. Falko Fecht & Antoine Martin, 2009. "Banks, markets, and efficiency," Annals of Finance, Springer, vol. 5(2), pages 131-160, March.
    2. Alexander Zimper, 2013. "Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited," German Economic Review, Verein für Socialpolitik, vol. 14(1), pages 89-107, February.
    3. Augusto Hasman & Margarita Samartin & Jos van Bommel, 2010. "Financial Intermediaries and Transaction Costs," Documents de Travail de l'OFCE 2010-02, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Haibin Zhu, 2003. "Credit constraints, financial liberalisation and twin crises," BIS Working Papers 124, Bank for International Settlements.

    More about this item

    Keywords

    liquidity; deposit contracts; banking; dynamic programming;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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