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The Fall and Rise of Keynesian Economics$
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John Eatwell and Murray Milgate

Print publication date: 2011

Print ISBN-13: 9780199777693

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199777693.001.0001

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Liquidity and Financial Crises

Liquidity and Financial Crises

(p.21) 2 Liquidity and Financial Crises
The Fall and Rise of Keynesian Economics

John Eatwell

Murray Milgate

Oxford University Press

This chapter clarifies what liquidity is, what constitutes a liquid market, how liquidity expands and contracts, and the relationship between liquidity and monetary and financial policy. A liquid market is a market in which there is both “adjective” liquidity and “noun” liquidity in evidence. The “adjective” and “noun” liquidity are combined and driven by financial innovation, which induces the expansion of liquidity and creates entirely new risks that are often misunderstood until manifested in a sudden loss of liquidity.

Keywords:   liquidity, liquid market, monetary, financial policy, adjective liquidity, noun liquidity, financial innovation

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