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Leverage Bubbles

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    Abstract

    This paper investigates the relation between liquidity and asset prices. It shows that, when banks balance sheets are marked to market and banks are targeting a financial leverage level - a situation similar to current environment - formation of Leverage Bubble phenomenon and suggests a new regulation rule based on a Dynamic Leverage Ratio (DLR) rule.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2009/09039.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 09039.

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    Length: 16 pages
    Date of creation: May 2009
    Date of revision:
    Handle: RePEc:mse:cesdoc:09039

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    Related research

    Keywords: Financial crises; rational bubbles; dynamic leverage ratio; mark to market accounting; asset pricing; macroprudential regulation; market liquidity.;

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