Stock Market Liquidity and the Macroeconomy
AbstractIn a liquid financial market, investors are able to sell large blocks of assets without substantially changing the price. We document a steep drop in the liquidity of the Japanese stock market in the post-bubble period and a steep rise in liquidity risk. We find that, during Japan''s deflationary period, firms with more liquid balance sheets were less exposed to stock market liquidity risk, while slowly growing firms were highly exposed to liquidity shocks. Also, aggregate liquidity had macroeconomic effects on aggregate demand through its effect on money demand.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 05/6.
Date of creation: 01 Jan 2005
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-22 (All new papers)
- NEP-FIN-2005-10-22 (Finance)
- NEP-FMK-2005-10-22 (Financial Markets)
- NEP-MAC-2005-10-22 (Macroeconomics)
- NEP-SEA-2005-10-22 (South East Asia)
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