Constrained liquidity provision in currency markets
本摘要源自该文的 CEPR 工作论文版（2024），正式发表版可能有调整。
We devise a simple model of liquidity demand and supply to deepen the understanding of dealers’ liquidity provision in currency markets. Drawing on a globally representative data set on currency trading volumes, we show that at times when dealers' intermediation capacity is constrained the cost of liquidity provision increases disproportionately relative to dealer-intermediated volume. Thus, the otherwise strong and positive relation between liquidity costs and trading volume effectively shrinks to zero when dealers are more constrained. Using various econometric approaches, we show that this result primarily stems from a reduction in the elasticity of liquidity supply, rather than changes in liquidity demand.