We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient...

Off-balance-sheet (OBS) activities are special means of credit expansion of commercial banks, which can affect banks' assets allocation decisions, loans supplies, and the bank lending channel of monetary policy transmission. This paper analyses the impact of OBS activities on banks' asset...

This paper provides a framework to analyse emergency liquidity assistance of central banks on financial markets in response to aggregate and idiosyncratic liquidity shocks. The model combines the microeconomic view of liquidity as the ability to sell assets quickly and at low costs and the...