Marking to Market, Liquidity and Financial Stability

33 Pages Posted: 30 Jul 2008  

Guillaume Plantin

University of Toulouse 1 - Toulouse School of Economics (TSE)

Haresh Sapra

University of Chicago - Booth School of Business

Hyun Song Shin

Bank for International Settlements

Date Written: July 7, 2005

Abstract

This paper explores the financial stability implications of mark-to-market accounting, in particular its tendency to amplify financial cycles and the "reach for yield". Market prices play a dual role. Not only do they serve as a signal of the underlying fundamentals and the actions taken by market participants, they also serve a certification role and thereby influence these actions. When actions affect prices, and prices affect actions, the loop thus created can generate amplified responses - both in creating bubble-like booms in asset prices, and also in magnifying distress episodes in downturns.

Keywords: Marking to market, accounting regime, monetary policy, financial stability

JEL Classification: G12, G21, G22, G28

Suggested Citation

Plantin, Guillaume and Sapra, Haresh and Shin, Hyun Song, Marking to Market, Liquidity and Financial Stability (July 7, 2005). Available at SSRN: https://ssrn.com/abstract=1186342 or http://dx.doi.org/10.2139/ssrn.1186342

Guillaume Plantin

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Haresh Sapra (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Hyun Song Shin

Bank for International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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