A general theory of liquidity is proposed. The major hypothesis advanced in the paper is that individuals do face borrowing restrictions in capital markets. The value of portfolios combining risky assets and cash balances is then related to the price assigned in some market of deposit insurance, and is accordingly characterised by a method suggested by actuarial researchers and commonly used by insurers and reinsurers. It is demonstrated that in this way, macroeconomics, financial economics and actuarial sciences fuse together in a unified theoretical framework, which can be applied as an alternative to the utility maximisation approach. Episodes of liquidity crises, which lack an explanation under classic economic theory, are meaningful within the new theoretical setting.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.
Volume (Year): 4 (2009) Issue (Month): 2(8)_ Summer 2009 () Pages: Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF