Stock Market Liquidity and the Macroeconomy: Evidence from Japan
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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Other versions of this item:
- Woon Gyu Choi & David Cook, 2006. "Stock Market Liquidity and the Macroeconomy: Evidence from Japan," NBER Chapters, in: Monetary Policy under Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 309-340 National Bureau of Economic Research, Inc.
- 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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