Liquidity and financial cycles
By: by Tobias Adrian and Hyun Shin.
Contributors: Shin, Hyun Song.; Bank for International Settlements. Monetary and Economic Dept.
Series: BIS working papers -- no. 256
Publisher: Bank for International Settlements
Published: 2008
Place of publication: Basel, Switzerland
Language: eng
Format: Electronic resource
Description: In a financial system where balance sheets are continuously marked to market, asset price changes show up immediately in changes in net worth, and elicit responses from financial intermediaries, who adjust the size of their balance sheets. We document evidence that marked to market leverage is strongly procyclical. Such behaviour has aggregate consequences. Changes in aggregate balance sheets for intermediaries forecast changes in risk appetite in financial markets, as measured by the innovations in the VIX index. Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"July 2008."

"Monetary and Economic Department."

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