IDEAS home Printed from https://ideas.repec.org/p/red/sed004/382.html
   My bibliography  Save this paper

Leaning against the wind

Author

Listed:
  • Pierre-Olivier Weill

Abstract

During financial disruptions, marketmakers provide liquidity by absorbing external selling pressure. They buy when the pressure is large, accumulate inventories, and sell when the pressure alleviates. This paper studies optimal dynamic liquidity provision in a theoretical market setting with large and temporary selling pressure, and order-execution delays. I show that competitive marketmakers offer the socially optimal amount of liquidity, provided they have access to enough capital. If raising capital is costly, this suggests a policy role for lenient central-bank lending during financial disruptions.

Suggested Citation

  • Pierre-Olivier Weill, 2004. "Leaning against the wind," 2004 Meeting Papers 382, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:382
    as

    Download full text from publisher

    File URL: https://pages.stern.nyu.edu/~pweill/papers/leaning.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    search; financial crisis;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed004:382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.