As with financial stability, I suggest as working definition of liquidity a dynamic one: I view liquidity as the ability of market participants to take risks on each other as they seek to fund asset purchases and meet obligations, both over normal and stressful environments. As it was the case with the definition of financial stability, this definition of liquidity stresses its dynamic aspects.
The endogeneity of liquidity indicates that it is best viewed as the outcome of confidence among market participants on the risk distribution of the decisions they make, and thus the monetary price they pay or receive. Liquidity is not an intrinsic, static, feature of financial instruments or markets.