Money and liquidity in financial markets
There is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks, a paper published by the Centre for Economic Policy Research (CEPR) argues.
In research published in June, the CEPR finds tightness in the interbank market for liquidity leads banks to engage liquidity pull-back, which involves selling financial assets either by banks directly or by levered investors. Empirical tests support this hypothesis.
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