Do accounting measurement regimes matter? A discussion of mark-to-market accounting and liquidity pricing
Using a model with banking and insurance sectors, Allen and Carletti show that marking-to-market interacts with liquidity pricing to exacerbate the likelihood of financial contagion between the two sectors. In this discussion, I lay out the main ingredients of their model and explain how they interact with liquidity pricing to generate financial contagion. I then discuss some limitations of their model and propose an interesting extension.
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- Guillaume Plantin & Haresh Sapra & Hyun Song Shin, 2008.
"Marking-to-Market: Panacea or Pandora's Box?,"
Journal of Accounting Research,
Wiley Blackwell, vol. 46(2), pages 435-460, 05.
- Douglas W. Diamond & Raghuram G. Rajan, 2005.
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- Douglas W. Diamond & Raghuram G. Rajan, 2002. "Liquidity Shortages and Banking Crises," NBER Working Papers 8937, National Bureau of Economic Research, Inc.
- Douglas W. Diamond & Raghuram G. Rajan, 2003. "Liquidity Shortages and Banking Crises," NBER Working Papers 10071, National Bureau of Economic Research, Inc.
- Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
- Franklin Allen & Douglas Gale, 2003.
"Financial Intermediaries and Markets,"
Center for Financial Institutions Working Papers
00-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
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