Market Liquidity: Research Findings and Selected Policy Implications

May 1999

This report is the result of a coordinated research effort by the central banks of Canada, Italy, Japan, the United Kingdom and the United States and the Bank for International Settlements on the determinants of market liquidity and on how central banks and other public authorities influence these determinants. Following a decision by the Euro-currency Standing Committee (now the Committee on the Global Financial System) in December 1997, a group of central bank economists and market analysts, under the chairmanship of the Bank of Japan, conducted this research from February 1998 to March 1999. As part of the study, staff from the central banks and/or government debt offices of all of the G-10 countries participated in a survey on the structure of government securities markets. The report consists of an overview note (Part 1) and eighteen individual papers on various aspects of market liquidity (Part 2). The overview note is the result of extensive discussions among the members of the study group, taking into account insights obtained from the individual papers. An appendix to Part 1 summarises the results of the government securities market survey. The individual papers provide the theoretical and empirical bases for the discussions of the study group.

Part 1.

Part 2. Individual papers

1. Conceptual Studies of Market Liquidity

2. Empirical Studies of Market Liquidity

2.1 Comparative studies

2.2 Country-level studies

3. Market Operations and Market Liquidity

4. Market Liquidity under Stress