Comment on: 'Interbank market liquidity and central bank intervention'

摘要

Why are the prices of long-term assets so volatile in the financial market? How should the central bank intervene in the financial market? In order to answer these questions, this paper develops a general equilibrium model of banks and depositors in which the depositors do not participate in the wholesale interbank market and in which the interbank market is incomplete. As in Diamond and Dybvig (1983), banks arise as providers of insurance to households who experience liquidity shock (shock to preference over consumption at different dates). As in a series of work by Allen and Gale (1994, 2007), only large agents such as financial intermediaries participate in the wholesale financial market. Small households participate in the financial market only through relatively simple contracts with financial intermediaries. A new aspect of this paper is that the interbank market is incomplete: only non-contingent long-term and short-term assets are traded in the interbank market. Because only a limited fraction of agents participate in the financial market and the financial market is incomplete, the price of the long-term asset depends upon the cash-in-the market, which is vulnerable to the aggregate shocks, such as the liquidity needs of households to consume urgently.