In the early years of macroeconomics as a discipline, the liquidity trap-that awkward condition in which monetary policy loses its grip because the nominal interest rate is essentially zero, in which the quantity of money becomes irrelevant because money and bonds are essentially perfect substitutes-played a central role. Hicks (1937), in introducing both the IS-LM model and the liquidity trap,...

The aim of this study is to examine the nonlinear effects of fiscal and monetary policies on inflation during 1990:3 to 2013:1 based on threshold model. First lag of the liquidity growth is recognized as threshold variable with threshold value estimated at 6.37 percent. In low liquidity growth, the results indicate that inflation expectations and the lagged liquidity growth are the most importa...

We show, both theoretically and empirically, that liquidity creation induces negative exposure to volatility risk. Intuitively, liquidity creation involves taking positions that can be exploited by privately informed investors. These investors’ ability to predict future price changes makes their payoff resemble a straddle (a combination of a call and a put). By taking the other side, liquidity ...

According to the Basel III regulatory framework, uniform minimum liquidity requirements have been imposed on all types of banks. Using an agent-based model of a banking system, we investigate the effects of liquidity requirements on banks' insolvency under two policy experiments in one of which the minimum liquidity requirements are applied uniformly and in the other differentially across banks...

Several papers explain why asset bubbles are observed when growth is large. These differ in the role of bubble, used to provide liquidities or as collateral a borrowing constraint. We compare liquidity and roles an overlapping generations model. When bubble deterministic, equilibrium identical under these two roles, implying that same mechanism explains crowding-in effect on growth. With stocha...

We introduce a new semiparametric model, GARCH with Functional EX ogeneous Liquidity (GARCH-FunXL), to capture the impact of liquidity, as implied by a stock exchange’s complete electronic limit order book (LOB), on asset price volatility. LOB-implied liquidity can be viewed as a functional rather than scalar or vectorial stochastic process. We adopt recent ideas from the functional data analys...

This paper has examined that relationship of institutional shareholdings with liquidity in 95 dividend paying and 100 non dividend paying firms listed on Karachi Stock Exchange from 2008 to 2013. The results are consistent with the “Prudent Man” hypothesis, investment institutions are risk averse and prefer to invest in low volatile, dividend paying and liquid stocks. The study analyzed the imp...

This paper uses unique NYSE audit trail data to evaluate spreads and information content for different order types. Actual spreads are positive for liquidity-demanding orders and negative for liquidity-supplying orders after controlling for order direction. However, because a large fraction of liquidity-demanding orders get price improvement, the actual spread for liquidity-demanding orders is ...

The purpose of this study is to find the factors that influence corporate liquidity holdings in Canada. This study also seeks to extend the studies of Isshaq and Bokpin [1] and Bruinshoofd and Kool [2] related to corporate liquidity management. A sample of 164 Canadian firms listed on the Toronto Stock Exchange for a period of 3 years (from 2008-2010) was selected. This study applied co-relatio...

This paper studies banks’decision whether to borrow from the interbank market or to sell assets in order to cover liquidity shortage in presence of credit risk. The following trade-off arises. On the one hand, tradable assets decrease the cost of liquidity management. On the other hand, uncertainty about credit risk of tradable assets might spread from the secondary market to the interbank mark...