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There is no distinction between money in microeconomics or macroeconomics. In both fields money is medium of exchange, unit of account and store of value. The misconception you have probably arises from the role money plays in microeconomics and macroeconomics. In microeconomics money is almost always neutral - that is it has no impact on the real ...


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Lack of liquidity depresses the output and can lead to recessions because it forces otherwise healthy firms to go bankrupt and it also undermines the financial infrastructure of an economy. I think good way of understanding the problem is to explore the difference between illiquidity and insolvency. When firms go bust it is often mainly due to one of the ...


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A very good question, but first some clarifications. The banking sector is unique from all other industries in that it creates its own liquidity. Banks borrow short term low yield debt and invest in high yield long term assets. The maturity mismatch that occurs in the aggregate is tremendous and not sustainable. Banks are always reliant on individuals ...


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In rough terms the central bank wants the nominal interest rates low so as a) to incentivize people to consume their income rather than save it and b) to make loans more attractive as they are linked with lower interest, thus bolstering consumption (again). During a crisis however, consumption remains low as expectations of economic growth deteriorate. ...


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In addition to comment given by @dismalscience, here you may find partial answer (hope I got everything right below). Since many similar terms refer to concepts that are close to each other, I'm also regularly fighting to get these somehow in order. For example, there are forward and futures contracts that use similar terms and are related to the yield curve ...


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Since I'm a macro rather than a corporate finance guy, my go-to resource for getting a rough sense of aggregate magnitudes is the flow of funds accounts. Take a look at the B.102 balance sheet for nonfinancial corporate business, and also the F.102 flows for nonfinancial corporate business. The relevant insights I draw from this data are: In aggregate ...


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I know very little about this, but check out Jake Zhao's work. He's an AP at Stony Brook. From the abstract, My model finds that 63% of the increase in corporate cash holdings can be accounted for by the increase in cash flow volatility. The increase in cash flow volatility observed in the data arises from a decrease in the correlation between ...


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Etymology and Introduction As a concept to measure the interchangeability of assets and money, liquidity is a new word. It first appears in 1923 in a use by Hawtrey (The Oxford English Dictionary (1989)). The underlying idea however is much older. Menger (1892) calls a good more or less saleable according to the facility to which it can be disposed of at ...


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This is because in order for many business to stay liquid they often have to issue short term debt. Many financial firms need liquidity so much that they literally make loans that are for duration of only one day. However, the more people invest their savings in bonds which are usually long term debt (most bonds have maturity over 5-10y), the less money is ...


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Different sides of the balance sheet. Capital represents long-dated instruments (infinite lifetime in the case of common equity) issued by a bank that are subordinated in a way to make them comparable to equity. (Can include instruments that are technically liabilities.) The existence of capital means that assets are greater than non-capital liabilities, i....


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Each of the aspects mentioned by Kyle points to a useful definition of "liquidity." Tightness of the market refers to the bid-ask spread, the price difference between the highest bid price across all venues and the lowest offer price across all venues. Theory by Black (1971) suggests that the size at the inside bid and offer will, however, be small....


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"...if such a...cycle exists..."---i.e. in economic language, whether liquidity and demand are endogenous to each other. Yes, of course they are. Liquidity (or illiquidity) of any asset can be viewed as an equilibrium outcome where agents confirm each other's beliefs---similar to the liquidity/illiquidity of a bank. As such it has a self-fulfilling ...


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Liquidity is a vague term, and it is more useful to talk about other factors that are measurable. However, the theory that a lack of liquidity alone causes investors to shy away runs against the reality that investors were very interested in real estate and private equity — both considered “illiquid” — before 2008. Corporate bonds are always somewhat ...


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Economically, they are both loans against financial instruments. The difference is the collateral posted - repos by the Fed are generally against Treasury securities. This is not a small difference: it makes it much easier for a bank to access liquidity, since not all of its assets are Treasury securities. There’s a mechanical difference: a discount window ...


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I can think of at least one paper where binding accounting rules are shown to have negative consequences on real investment: Can Tight Accounting Oversight Distort Investment? Evidence from Mortgage Restructurings after the JOBS Act Abstract: I study the effect of accounting oversight on a bank’s level of troubled mortgage restructurings. If banks ...


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I think for your purposes, the best answer to the question is what you appear to be anticipating: in certain macroeconomics discussions, "money" operates primarily as a unit of account, because of the convenience it offers in allowing the ability to "measure" all the different forms of economic output with a single unit. In that sense, it plays a similar ...


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One place to start would be to look at the OnBalanceVolume technical indicator. This is by no means reliable, but it’s a place to start. It tells you how much of the volume hit the bid vs how much hit the ask. On a very good day, MSFT on balance volume is 2 million shares out of ~34 million shares traded. So presumably you could sell some relatively ...


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Asking how the system could bootstrap itself into existence using current rules is ahistorical. There are two ways of answering this. Historically, the developed countries evolved from various versions of the Gold Standard. The money stock was generated by buying gold (monetising it), and the banking system was private (central banks were nationalised ...


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The current international monetary system based on pure fiat currency is a post-1970s system. For a long time before that most of the international monetary system was based on the gold standard. With the gold standard, governments issued currency relative to the amount of gold they held or they pegged their currency to another currency that was backed by ...


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Yes. There is a good chapter on this general question in The Valuation Handbook book by Ashok Abbott. It is a whole chapter so it is too long reproduce here. Shortened down, he shows that there is a half-life effect given the amount of volume that a dealer normally carries and how long it normally takes them to liquidate a position. ISBN-10: 0470385790


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As an initial note, I have not seen any plausible claims that a crypto crash would cause liquidity problems for the financial system. As a reult, I would need to guess to the mechanism. I do not think “liquidity” is what anyone should worry about right now. For a firm we need to distinguish between illiquid and insolvent. Illiquid: the firm does not have ...


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These are theories, so need empirical justification. They may not be true, and even if they appear to be true they may still be wrong about the cause and effect. If you regard your first statement as saying that people with increased monetary wealth will want to see a income increase from this wealth then they will buy bonds and other less liquid ...


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The situation you describe, one with negative nominal rates, only can happen with the use of force or where the instrument acts as an insurance policy. In the case where the instrument serves as an insurance policy, the implicit premium is that negative rate. To consider why this is the case, consider two investments. The first investment provides an $\...


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Cash and bonds are almost identical from financial and economic perspective. Most institutional investors and banks keep much of their cash in bonds. Physical cash is becoming a bit obsolete so the notion of "hoarding cash" no longer means taking out bags with dollar bills and stuffing them under the mattress or into the safe box. Hoarding cash nowadays is ...


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