Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

President Lacker, I guess there are at least a couple of theories you could have. One of them has to do with capital. If you think that certain types of intermediaries have specialized knowledge and their ability to lend depends on their capital, then there are informational asymmetries in which clearly exogenous destruction of part of that capital is going to affect equilibrium outcomes in the market. That’s one possibility. The other class of models has to do with liquidity, where you have thick or thin markets depending on “I trade if you trade” and so on and you have markets in which nobody is trading and so no one wants to be the first to enter. By becoming a marketmaker, you can perhaps generate more activity. I think there are some interesting perspectives out there.

Keyboard shortcuts

j previous speech k next speech