One important cause of the 2007-2009 crisis was illiquidity combined with exposure of many financial institutions to liquidity needs. But what is liquidity and why is it so important for financial institutions to command enough liquidity? This book brings together classic articles and recent contributions to this important field.

• 1.: An Introduction to Liquidity and Crises


• Franklin Allen, Elena Carletti, Jan Pieter Krahnen, and Marcel Tyrell


• Section 1: Liquidity and Interbank Markets


• 2.: Preference Shocks, Liquidity and Central Bank Policy


• Sudipto Bhattacharya/Douglas Gale (London School of Economics/New York University)


• W. Barnett and K. Singleton, eds., New Approaches to Monetary Economics, Cambridge University Press, 1987, pp. 69-88.


• 3.: Endogenous Liquidity in Asset Markets


• Andrea Eisfeldt (Northwestern University)


• Journal of Finance, February 2004, 59, pp.1-30


• 4.: Financial Intermediaries and Markets


• Franklin Allen/Douglas Gale (The Wharton School, University of Pennsylvania/New York University)


• Econometrica, 72(4), July 2004, pp. 1023-106.1


• 5.: Financial Fragility, Liquidity and Asset Prices


• Franklin Allen/Douglas Gale (The Wharton School, University of Pennsylvania/New York University)


• Journal of the European Economic Association, 2(6), December 2004, pp. 1015-1048.


• 6.: Interbank Market Integration under Asymmetric Information


• Xavier Freixas/Cornelia Holthausen (Universitat Pompeu Fabra, Barcelona/European Central Bank, Frankfurt)


• Review of Financial Studies, 18(2), Summer 2005, pp. 459-90.


• 7.: Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Markets


• Craig Furfine (Federal Reserve Bank of Chicago)


• Journal of Business, January 2001, 74, 33-57.


• Section 2: Public Provision of Liquidity and Regulation


• 8.: Private and Public Supply of Liquidity


• Bengt Holmstrom/Jean Tirole (MIT/ Universite Sciences Sociales, Toulouse)


• Journal of Political Economy, February 1998, 106, pp.1-40.


• 9.: Liquidity, Efficiency and Bank Bailouts


• Gary Gorton/Lixin Huang (The Wharton School, University of Pennsylvania/Georgia State University)


• American Economic Review, 94(3), June 2004, pp. 455-483.


• 10.: Financial Crises, Payments System Problem and Discount Window Lending


• Mark Flannery (University of Florida)


• Journal of Money, Credit and Banking, November 1996, 28(4), pp. 804-824.


• 11.: Liquidity, Risk Taking, and the Lender of Last Resort


• Rafael Repullo (CEMFI)


• International Journal of Central Banking, 1, December 2005, pp. 47-80.


• 12.: Coordination Failures and the Lender of Last Resort: Was Bagehot Right after all?


• Jean-Charles Rochet/Xavier Vives (University Sciences Sociales, Toulouse/IESE, University of Navarra)


• Journal of the European Economic Association, 2(6), December 2004, pp. 1116-47.


• 13.: Competition among Regulators and Credit Market Integration


• Giovanni Dell'Ariccia/Robert Marquez (IMF/Arizona State University)


• Journal of Financial Economics, 79(2), February 2006, pp. 401-30.


• Section 3: Money, Liquidity Crises and Asset Prices


• 14.: Money in a Theory of Banking


• Douglas Diamond/Raghuram Rajan (University of Chicago)


• American Economic Review, 96(1), March 2006, pp. 30-53.


• 15.: Liquidity and Asset Prices


• Nobuhiro Kiyotaki/John Moore (Princeton University/University of Edinburgh)


• International Economic Review, 46(2), May 2005, pp. 317-49


• 16.: Collateral Constraints in a Monetary Economy


• Juan Cordoba/Marla Ripoll (Rice University/University of Pittsburgh)


• Journal of the European Economic Association, 2(6), December 2004, pp. 1172-1205.


• 17.: Inefficient Credit Booms


• Guido Lorenzoni (MIT)


• Review of Economic Studies, 75(3), July 2008, pp. 809-833.


• Section 4: Contagion Effects in Financial Crises


• 18.: Financial Contagion through Capital Connections: A Model of the Origin and Spread of Bank Panics


• Amil Dasgupta (London School of Economics and Political Science)


• Journal of the European Economic Association, 2(6), December 2004, pp. 1049-84.


• 19.: Information Contagion and Bank Herding


• Viral V. Acharya/Tanju Yorulmazer (London Business School/Federal Reserve Bank of New York)


• Journal of Money, Credit and Banking, February 2008, 40(1), pp. 215-231.


• 20.: Cash-in-the-market Pricing and Optimal Resolution of Bank Failures


• Viral V. Acharya/Tanju Yorulmazer (London Business School/Federal Reserve Bank of New York)


• Review of Financial Studies, November 2008, 21, pp. 2705-2742.


• 21.: Credit Risk Transfer and Contagion


• Franklin Allen/Elena Carletti (The Wharton School, University of Pennsylvania/ J.W. Goethe-Universitat Frankfurt and CFS)


• Journal of Monetary Economics, 2008, 53, 89-111.


• 22.: Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?


• Christian Upper/Andreas Worms (Bank for International Settlements/Deutsche Bundesbank)


• European Economic Review, 48(4), August 2004, pp. 827-49.


• Section 5: Financial Crises and Currency Crises


• 23.: Asset Market Linkages in Crisis Periods


• Philipp Hartmann/Stefan Straetmans/Casper de Vries (European Central Bank/Maastricht

Franklin Allen is the Nippon Life Professor of Finance and Professor of Economics at the Wharton School of the University of Pennsylvania. He has been on the faculty since 1980. He is currently Co-Director of the Wharton Financial Institutions Center. He is a past President of the American Finance Association.
Elena Carletti is Professor of Economics at the European University Institute and Joint Chair of the Economics Department and Robert Schuman Center for Advanced Studies.
Jan Pieter Krahnen is Chair of Corporate Finance at Johann Wolfgang Goethe-University Frankfurt.
Marcel Tyrell is Professor of Entrepreneurship & Finance at Zeppelin University, Friedrichshafen