🍫Introduction: Sticky Liquidity

A situation in which money or capital is not easily or quickly available for spending or investment

To understand sticky liquidity, let's imagine a scenario.

Suppose you have some cash saved up in a piggy bank at home. You plan to use that money to buy a new video game console. However, there's a problem—the piggy bank has a small slot for putting money in, but it's tough to get the money out. In this case, the cash in the piggy bank represents your liquidity.

Let's say you suddenly decide you want to use that money to buy the console. However, you can't easily access the cash due to the small slot or maybe a lock on the piggy bank. Even though you have the money, it's stuck in the piggy bank, and you can't use it for your immediate needs. Sticky liquidity can create challenges for individuals, businesses, or even financial markets. It can limit spending and investment opportunities, hinder economic growth, and cause financial stress. Just like you may feel frustrated when you can't access the money in your piggy bank, individuals and businesses may face difficulties when their money or capital is not easily accessible.

In summary, sticky liquidity refers to a situation where money or capital is not readily available for use due to various constraints or limitations. It's like having money that gets stuck or trapped, similar to the cash in a piggy bank that's difficult to access.