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Towards A General Theory Of Liquidity Preference

Listed author(s):
  • Fernando MIERZEJEWSKI
  • Katholieke Universiteit

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.

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File URL: http://www.jaes.reprograph.ro/articles/summer2009/MierzejewskiF.pdf
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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:

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Handle: RePEc:ush:jaessh:v:4:y:2009:i:2(8)_summer2009:64
Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

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  1. Holmstrom, Bengt & Tirole, Jean, 2000. "Liquidity and Risk Management," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 295-319, August.
  2. Tobin, James, 1982. " The Commercial Banking Firm: A Simple Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(4), pages 495-530.
  3. Tobin, James, 1981. "The Monetarist Counter-Revolution Today-An Appraisal," Economic Journal, Royal Economic Society, vol. 91(361), pages 29-42, March.
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  5. Venter, Gary G., 1991. "Premium Calculation Implications of Reinsurance Without Arbitrage," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 21(02), pages 223-230, November.
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  7. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
  8. Milton Friedman, 1971. "Correspondence of the Monetary Theory of Nominal Income with Experience," NBER Chapters,in: A Theoretical Framework for Monetary Analysis, pages 46-48 National Bureau of Economic Research, Inc.
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  13. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
  14. Fernando MIERZEJEWSKI, 2008. "The Economic Capital Of Opaque Financial Institutions," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 232-245.
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  17. Robert C. Merton & André Perold, 1993. "Theory Of Risk Capital In Financial Firms," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(3), pages 16-32.
  18. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  19. Milton Friedman, 1971. "Some Dynamic Implications of the Monetary Theory of Nominal Income," NBER Chapters,in: A Theoretical Framework for Monetary Analysis, pages 40-43 National Bureau of Economic Research, Inc.
  20. Robert C. Merton & Zvi Bodie, 1992. "On the Management of Financial Guarantees," Financial Management, Financial Management Association, vol. 21(4), Winter.
  21. Merton, Robert C, 1978. "On the Cost of Deposit Insurance When There Are Surveillance Costs," The Journal of Business, University of Chicago Press, vol. 51(3), pages 439-452, July.
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  25. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
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