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Marking to Market, Liquidity, and Financial Stability

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Author Info
Plantin, Guillaume (Carnegie Mellon U)
Sapra, Haresh (U Chicago)
Shin, Hyun-Song (London School of Economics)
Abstract

This 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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File URL: http://www.imes.boj.or.jp/english/publication/mes/2005/me23-S1-7.pdf
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Publisher Info
Article 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)
Pages: 133-55
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Handle: RePEc:ime:imemes:v:23:y:2005:i:s1:p:133-55

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
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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This page was last updated on 2008-10-3.

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