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Inside and Outside Liquidity$
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Bengt Holmstrom and Jean Tirole

Print publication date: 2011

Print ISBN-13: 9780262015783

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262015783.001.0001

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Public Provision of Liquidity in a Closed Economy

Public Provision of Liquidity in a Closed Economy

(p.120) (p.121) 5 Public Provision of Liquidity in a Closed Economy
Inside and Outside Liquidity

Holmström Bengt

Tirole Jean

The MIT Press

This chapter investigates the nature of missing insurance contracts, and from this looks at countercyclical policies. It points out the state’s comparative advantage in enforcing transfers in low-probability events. It also argues that the timing and amount of funds that should be transferred from customers to producers rely on the consumers’ liquidity needs as well. It continues by explaining that generations of consumers may need liquidity in the states that need liquidity. An example of this is unemployment insurance; where unemployment insurance is provided by firms, the corporate liquidity demand in times of recessions would be even bigger.

Keywords:   liquidity, insurance contract, unemployment insurance, consumers

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