A New York Federal Reserve paper, published in March, says central banks can improve efficient allocation of liquidity and prevent markets from entering a hoarding cycle by supplying liquidity to the market.

Douglas Gale and Tanju Yorulmazer, the paper's authors, investigate the welfare implications of liquidity hoarding when markets are incomplete and possible solutions to prevent banks from accumulating a stock of liquid assets.

During the financial crisis, Gale and Yorulmazer say banks began