4  Rajan Raghuram and Douglas Diamond (2001) “Liquidity risk, liquidity creation and financial fragility: a theory of banking” Journal of Political Economy, Vol 109, no 2 (April 2001), page 290. 5  Bengt Holmstrom and Jean Tirole (2011) “Inside and outside liquidity, The MIT Press. BIS central bankers’ speeches  1  another.
Consequently, they must prepare for financial shocks and reinforce their liquidity position, thus generating a demand for liquidity. These authors distinguish between inside liquidity – created against pledgeable income – and outside liquidity, created by public entities backed by the state capacity to tax present and future income.