Liquidity and Leverage

@article{Adrian2008LiquidityAL,
  title={Liquidity and Leverage},
  author={T. Adrian and Hyun Song Shin},
  journal={Macroeconomics eJournal},
  year={2008}
}
  • T. Adrian, Hyun Song Shin
  • Published 2008
  • Economics
  • Macroeconomics eJournal
In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, and eliciting responses from financial intermediaries who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos - the primary margin of adjustment for the aggregate balance sheets of intermediaries - forecast changes in… Expand
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