However, ample market liquidity could also reflect the “search for yield” and excessive risk appetite, indicating that liquidity risk could be underpriced. If this is soothe case, the current favourable market liquidity conditions could suddenly fade away if there were an abrupt and lasting increase in risk aversion.
1  See Thomas Sargent and Neil Wallace, “Some Unpleasant Monetarist Arithmetic”, Federal Reserve Bank of Minneapolis Quarterly Review, 5 (Fall 1981), pp 1–17. 2  BIS central bankers’ speeches  Such policies are intended to redistribute losses on nominal debt from the borrowers to the lenders. Using inflation as a backdoor to such fiscal choices is bad policy, in my view.