liquidity shock. the latter then retroacts into a more severe and widespread funding liquidity problem. see also how these cycles get intertwined with leverage decisions and can trigger rapid deleveraging in the shadow banking industry : for hedge funds or broker - dealer businesses, which typically finance an asset acquisition in the repo market, the maximum leverage for that specific operation is given by the inverse of the haircut which is applied on the value of collateral by the funding entity in the repo transaction. as the haircut increases in the adverse liquidity conditions that i have described, the leveraging potential of the shadow - bank plunges almost mechanically. these notions of liquidity cycles – and their interactions with leverage – are now almost old hat for macroeconomists. but there is another representation of a liquidity cycle that has escaped much academic investigation. this representation distinguishes different types of liquidity depending on its issuer : • outside liquidity comprises currency or, more generally, central bank overnight liabilities. these liabilities are what we typically understand as “ money ” in the narrowest sense of the word. in our modern fiat - money systems, this form of money is backed by a legal and social promise to essentially preserve its purchasing power and transaction services over time. • inside liquidity is a much broader object, including short - dated money - like liabilities that are issued by the private entities and thus backed by private credit. they would cancel out if all the claims held by banks on private creditors were to be settled. so, it is one form of currency that is created – and can be destroyed – within the private economy. on the basis of this distinction, we can explain another type of liquidity cycle, which i will refer to as the “ outside - inside ” liquidity cycle. this cycle reflects the alternating phases and sometimes wild swings characterising banks ’ demand for precautionary buffers of outside money from the central bank. again, the alternating phases of this type of cycle come to interplay with the underlying deleveraging course. and they do so in a way that can strongly complicate policy. 1. 3 the scope and limits for central banks to control leveraging cycles let me describe how these complications played out in the current crisis. brunnermeier m. k. and l. h. pedersen ( 2009 ), “ market liquidity and funding liquidity ”, review of financial studies, vol. 22 ( 6 ), pp

( tonne ) know christian noyer? he was the european central bank's inaugural vice - president in 1998. in 2003 he was appointed governor of the banque de france, and later he additionally became chairman of the board of directors of the bank for international settlements, a capacity in which i eventually succeeded him. moreover, we can both look back on a long period of close cooperation in the ecb ’ s governing council. he is now honorary governor of the banque de france and continues to play an active role in the world of ﬁnance, including as a member of the french high council of public finance or the board of directors at bnp paribas. christian, you have steered the banque de france with a steady hand through times of ﬁnancial and economic crisis in europe. as christine lagarde ( then managing director of the imf ) highlighted at your farewell symposium, you came to be known as the “ banquier anti - stress ”. [ 9 ] maybe your love of sailing helped you navigate the rough economic waters. that said, i am very pleased that you are not navigating the high seas today, but have chosen instead to share with us your profound assessment based on your wealth of professional experience. 3 jordi gali for a change of perspective, we turn to the point of view of a renowned researcher : jordi gali. jordi is a professor at pompeu fabra university ( upf ), a research professor at the barcelona graduate school of economics ( gse ) and a senior researcher at the centre for research in https : / / www. bundesbank. de / en / press / speeches / introductory - panel - statement - 846034 3 / 5 30 / 09 / 2020 introductory panel statement | deutsche bundesbank international economics ( crei ). previously, he held academic positions at new york university and columbia university, after earning his ph. d. at the massachusetts institute of technology ( mit ). jordi, your list of professional activities and publications is impressive. you are one of the leading proponents of new keynesian economics, pushing the research frontier on the analysis of business cycles, monetary and ﬁscal policies. together with richard clarida and mark gertler, you synthesised your thinking in a widely studied paper entitled “ the science of monetary policy : a new keynesian perspective ”. you wrote that article more than two decades ago, and your work since then has