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15 posts from October 2015

October 06, 2015

Has Liquidity Risk in the Corporate Bond Market Increased?



Second in a six-part series
Recent commentary suggests concern among market participants about corporate bond market liquidity. However, we showed in our previous post that liquidity in the corporate bond market remains ample. One interpretation is that liquidity risk might have increased, even as the average level of liquidity remains sanguine. In this post, we propose a measure of liquidity risk in the corporate bond market and analyze its evolution over time.

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Posted by Blog Author at 7:00 AM in Financial Markets, Liquidity | Permalink | Comments (0)

October 05, 2015

Has U.S. Corporate Bond Market Liquidity Deteriorated?



First in a six-part series
Commentators have argued that market liquidity has deteriorated in recent years as regulatory changes have reduced banks’ ability and willingness to make markets. In the corporate debt market, dealer positions, which are considered essential to good liquidity, have indeed declined, even as issuance and outstanding debt have increased. But is there evidence of reduced market liquidity? In previous posts, we discussed these issues in the context of the U.S. Treasury securities market. In this post, we focus on the U.S. corporate bond market, reviewing both price- and quantity-based liquidity measures, including trading volume, trade size, bid-ask spreads, and price impact.

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Posted by Blog Author at 11:02 AM in Dealers, Financial Institutions, Financial Markets, Liquidity | Permalink | Comments (4)

Introduction to a Series on Market Liquidity: Part 2



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Market participants and policymakers have raised concerns about the potential adverse effects of financial regulation on market liquidity—the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of capital through financial markets, which is a catalyst for sustainable economic growth. Changes in market liquidity, whether due to regulation or other forces, are therefore of great interest to policymakers and market participants alike.

Continue reading "Introduction to a Series on Market Liquidity: Part 2" »

Posted by Blog Author at 11:00 AM in Dealers, Financial Markets, Liquidity, Regulation | Permalink | Comments (0)

October 02, 2015

Crisis Chronicles: Defensive Suspension and the Panic of 1857



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Sometimes the world loses its bearings and the best alternative is a timeout. Such was the case during the Panic of 1857, which started when a prestigious bank in New York City collapsed, making all banks suddenly suspect. Banks, fearing a run on their gold reserves, started calling in loans from commercial firms and brokers, leading to asset sales at fire-sale prices and bankruptcies. By mid-October, banks in Philadelphia and New York suspended convertibility, meaning they would not allow gold to be withdrawn from their vaults even while all other banking services continued. Suspension then swept the nation as part of a defensive strategy, supported by local business interests, to prevent the Panic from spreading. While the suspensions appeared successful and few banks ended up failing, President Buchanan was outraged by what he viewed as yet another corrupt banking practice. He proposed making suspension a “death sentence” for banks as a draconian incentive to encourage safer banking practices. In this edition of Crisis Chronicles, we describe the Panic of 1857 and explain why businesses pushed for national suspension to save themselves.

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Posted by Blog Author at 7:00 AM in Banks, Crisis Chronicles , Economic History, Panic | Permalink | Comments (3)

October 01, 2015

Introducing Our New App: Economic Research Tracker



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Our experiment in blogging began four years ago, when we launched Liberty Street Economics. Now, with more than 600 posts published, the blog platform has become a central way for us to share our research with a wide audience. To further expand access to the blog, we’re excited to bring readers a new option for keeping up with our work—the Economic Research Tracker for Apple iPad.

Continue reading "Introducing Our New App: Economic Research Tracker" »

Posted by Blog Author at 11:06 AM in Macroecon | Permalink | Comments (2)

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Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan.

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