Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing …, 2008), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback … between lender of last resort policy and incentives of private banks, determining the aggregate amount of liquidity available …

We show that the impact of government bailouts (liquidity injections) on a representative bank's risk taking depends on … decreases (increases) bank's risk taking. Second, the optimal liquidity policy itself depends on systematic risk. Third, the … relationship between bailouts and bank's risk taking is not monotonic. When systematic risk is low, the optimal liquidity policy is …

entropy, closest matching and random matching. Contagion occurs through liquidity hoarding, interbank interlinkages and fire … the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk but at the cost of lower …

face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating …

liquidity risk, credit risk (financial and sovereign), and interest rate expectations. Our results suggest that liquidity risk … fears. In addition, the ECB appears to have been more effective in addressing liquidity risk since the onset of the crisis …

This paper studies banks' liquidity provision in the Lagos and Wright model of monetary exchanges. With aggregate …