Do Accounting Measurement Regimes Matter? A Discussion of Mark-to-Market Accounting and Liquidity Pricing
University of Chicago - Booth School of Business
September 16, 2007
Journal of Accounting & Economics (JAE), Vol. 45, No. 2 & 3, pp. 379-387, 2008
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.
Number of Pages in PDF File: 17
Keywords: Mark-to-Market, Historical Cost, Liquidity Pricing, Accounting Measurement
JEL Classification: D52, G12, G21, G22, M41, M44
Date posted: July 30, 2008 ; Last revised: September 21, 2008
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