Marking to Market, Liquidity, and Financial Stability
AbstractThis paper explores the financial stability implications of mark-to-market accounting, in particular its tendency to amplify financial cycles and the "reach for yield." Market prices play a dual role. Not only do they serve as a signal of the underlying fundamentals and the actions taken by market participants, they also serve a certification role and thereby influence these actions. When actions affect prices, and prices affect actions, the loop thus created can generate amplified responses--both in creating bubble-like booms in asset prices, and also in magnifying distress episodes in downturns.
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Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 23 (2005)
Issue (Month): S1 (October)
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Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103
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Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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- Dairo Estrada & Daniel Osorio, 2006. "A Market Risk Approach To Liquidity Risk And Financial Contagion," BORRADORES DE ECONOMIA 001921, BANCO DE LA REPÚBLICA.
- Dairo Estrada & Daniel Osorio, . "A Market Risk Approach to Liquidity Risk and Financial Contagion," Borradores de Economia 384, Banco de la Republica de Colombia.
- Daniel Pérez & Vicente Salas-Fumás & Jesús Saurina, 2011. "Do dynamic provisions reduce income smoothing using loan Loss provisions?," Banco de Espaï¿½a Working Papers 1118, Banco de Espa�a.
- Ilhyock Shim & Goetz von Peter, 2007. "Distress selling and asset market feedback," BIS Working Papers 229, Bank for International Settlements.
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