Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282228 
Year of Publication: 
2023
Series/Report no.: 
KRTK-KTI Working Papers No. KRTK-KTI WP - 2023/07
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Centre for Economic and Regional Studies, Budapest
Abstract: 
Liquidity is a key consideration in financial markets, especially in times of financial crises. For this reason, regulatory attention to and measures in this field have been on the rise for the past years. Based on practical experience, regulations aiming at ensuring funding liquidity or, in general, reducing certain risky positions have the side effect of reducing market liquidity. To understand this effect, we extend a standard general equilibrium model with transaction costs of trading, endogenous market liquidity, and the modeling of regulation. We prove that funding liquidity regulation or divesting bad ESG assets reduces market liquidity.
Subjects: 
market liquidity
funding liquidity
general equilibrium model
regulatory requirement
ESG related assets
JEL: 
G11
Document Type: 
Working Paper

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