Marking to Market, Liquidity, and Financial Stability

Guillaume Plantin (), Haresh Sapra and Hyun Song Shin
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Guillaume Plantin: Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh]
Haresh Sapra: University of Chicago

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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 (search for similar items in EconPapers)
Date: 2005-09-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03459036
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Citations: View citations in EconPapers (5)

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Journal Article: Marking to Market, Liquidity, and Financial Stability (2005)
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