the initial shock; and (iii) asset purchase policies and long-term refinancing operations can both be successful in …

We study liquidity transfers between banks through the interbank borrowing and asset sale markets when, (i) surplus …) compared to outside markets, or is prepared to extend potentially loss-making loans. The public provision of liquidity to banks …, in fact its mere credibility, can thus improve the private allocation of liquidity among banks. This rationale for …

a liquidity shock, and an injection of cash is required for the asset to mature if it is hit by the shock. Banks have …We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on … parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal …