CGFS Publishes Research on the Determinants of Market Liquidity

The BIS is today releasing a report on "Market Liquidity: Research Findings and Selected Policy Implications". The report, produced by a study group established by the Committee on the Global Financial System (CGFS), comprises the analytical papers that resulted from the group's efforts, as well as an overview note drawing on the insights obtained from the papers and on the discussions of the study group. This work is in accordance with the Committee's mandate to engage in in-depth analysis of the functioning of financial markets and systems. The papers, including the overview, represent the views of the authors and not necessarily those of the institutions with which they are affiliated, the Bank for International Settlements or the CGFS.

Recent episodes of turbulence in global financial markets, as well as the ever increasing importance of traded markets to financial intermediation, have focused the attention of policymakers and academics on the determinants and dynamics of market liquidity. The group recognised that an attempt to understand the mechanics of market liquidity is needed in order to inform public and private activities that either presume the existence of liquid markets or affect the extent to which markets are liquid. Liquidity in government bond markets is of particular interest to central banks, because of the relevance of these markets for monetary policy and financial stability. For this reason, the group decided to make a particular effort to understand what determines liquidity in these markets, at both the theoretical and empirical levels. As part of the study, staff from the central banks and/or government debt offices of all of the G10 countries participated in a survey on the structure of their respective government securities markets.

The group notes that central bank activities inevitably have an impact on market liquidity, corresponding to the various roles that central banks perform in the financial system. It therefore proposes that central banks continue to promote further research into its determinants. The Committee hopes that this volume will help to encourage further efforts to understand these very important issues.

The report is available on the BIS website (http://www.bis.org).

Note: The Committee on the Global Financial System is a central bank forum, established by the Governors of the G10 central banks, for the monitoring and examination of broad issues relating to financial markets and systems with a view to elaborating appropriate policy recommendations to support the central banks in the fulfilment of their responsibilities with regard to monetary and financial stability. In carrying out these tasks, the Committee places particular emphasis on assisting the Governors in recognising, analysing and responding to threats to the stability of financial markets and the global financial system.