Gale, Douglas; Yorulmazer, Tanju - In: Theoretical economics : TE ; an open access journal in … 8 (2013) 2, pp. 291-324
Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in … the market equilibrium is constrained inefficient, with too little liquidity and inefficient hoarding. Our model features … a precautionary as well as a speculative motive for hoarding liquidity, but the inefficiency of liquidity provision can …