Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299272 
Year of Publication: 
2023
Series/Report no.: 
MNB Working Papers No. 2023/1
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
Liquidity and market risk are key considerations in financial markets, especially in times of financial crises. For this reason, regulatory attention to and measures in these fields 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 higher regulatory requirements or divesting bad ESG assets reduces market liquidity.
Subjects: 
Market liquidity
Market risk
Liquidity risk
General equilibrium model
Regulatory requirement
ESG related assets
JEL: 
G11
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.