Kharroubi, Enisse - Bank for International Settlements (BIS) - 2015
This paper studies the choice between building liquidity buffers and raising funding ex post, to deal with liquidity … shocks. We uncover the possibility of an inefficient liquidity squeeze equilibrium. Agents typically choose to build smaller … liquidity buffers when they expect cheap funding. However, when agents hold smaller liquidity buffers, they can raise less …