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Working paper
Using cash to monitor liquidity - implications for payments, currency demand and withdrawal behavior
In: Discussion paper Eurosystem
In: Ser. 1, Economic studies 22/2011
Standard transaction cost arguments can only partially explain why the share of cash transactions is still high in many countries. This paper shows that consumers desire to monitor liquidity is one of the reasons. Consumers make use of a distinctive feature of cash a glance into ones pocket provides a signal for both the remaining budget as well as the level of past expenses. We propose a theoretical framework which incorporates this feature of cash, and derives implications not only for cash usage as such but also for a broader set of paymentrelated activities. Survey data from Germany on consumers payment and withdrawal patterns are used to test these implications empirically. The data are consistent with all theoretical predictions: consumers who need to keep control over their remaining liquidity and who have elevated costs of information processing and storage will conduct a larger percentage of their payments using cash, hold fewer non-cash payment instruments, withdddw less 5ften and hold larger ca0gh balances than other consumers. Such consumers also use payment cards for some transactions; they switch to non-cash payment instruments only at higher transaction values than other consumers, however. Our model provides an explanation of why cash usage has declined only slowly in some countries despite broad diffusion of non-cash means of payme
Using Cash to Monitor Liquidity - Implications for Payments, Currency Demand and Withdrawal Behavior
In: ECB Working Paper No. 1385
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Using Cash to Monitor Liquidity: Implications for Payments, Currency Demand and Withdrawal Behavior
In: Bundesbank Series 1 Discussion Paper No. 2011,22
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Liquidity in Retirement Savings Systems: An International Comparison
In: American economic review, Band 105, Heft 5, S. 420-425
ISSN: 1944-7981
We compare the liquidity that six developed countries have built into their employer-based defined contribution (DC) retirement schemes. In Germany, Singapore, and the UK, withdrawals are essentially banned no matter what kind of transitory income shock the household realizes. By contrast, in Canada and Australia, liquidity is state-contingent. For a middle-income household, DC accounts are completely illiquid unless annual income falls substantially, in which case DC assets become highly liquid. The US stands alone in the universally high liquidity of its DC system: whether or not income falls, the penalties for early withdrawal are low or non-existent.
Deposit Withdrawals from Distressed Banks: Client Relationships Matter
In: Journal of Financial Stability, Forthcoming
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Interbank Lending, Liquidity and Banking Crises
In: Economic notes, Band 31, Heft 3, S. 493-521
ISSN: 1468-0300
In this paper, we show that abandoning the Diamond and Dybvig hypothesis of a unique bank representing the entire banking system gives rise to the possibility of endogenizing the interbank exchanges. In a system characterized by uncertainty regarding the moment of withdrawal of deposits, access to interbank liquidity decreases the bank risk of failure and bank runs. The possibility, moreover, to invest excess liquidity in the interbank market at a positive interest rate increases expected bank profits.(J.E.L.: E52, G21).
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Working paper
Strategy, tax planning and liquidity constraints in investment funds
In: Journal of economic studies, Band 46, Heft 4, S. 842-857
ISSN: 1758-7387
PurposeThe purpose of this paper is to analyze the effect of the interaction between liquidity constraints and tax planning on the performance of Brazilian investment funds, since liquidity constraints reduce precipitated withdrawals, allowing tax planning operationalization.Design/methodology/approachThe sample of this study is comprised of 8,008 Brazilian multimarket funds, considering the period from January 2004 to September 2017. The authors considered tax planning, lockup periods and minimum balance of investment as independent variables, and the authors used the Sharpe ratio as a proxy for performance. To test the study hypothesis, the authors employed regression models with panel data.FindingsThe main findings indicate some evidences that investment funds which implement, at the same time, liquidity constraints with tax planning have an extra risk-adjusted return index. This result can represent a premium registered by investment funds with have enough resources to achieve competitive advantage. Nevertheless, the result for the main hypothesis was not robust to different forms of performance measurement.Originality/valueThis study promotes an interaction between finance and organizational strategy, since it employs aspects of strategy theories to support the implications that the internal resources of investment funds, such as their liquidity constraints and tax planning, may exert on their performance. In addition, this study advances by providing new evidences about liquidity constraints in investments funds, which have the potential to contribute with the operationalization of strategy and tax planning of funds' managers.
Impact of Specific Liquidity Shocks on the Bank's Solvency
In: Journal of Risk Finance, Vol. 25 No. 2. https://doi.org/10.1108/JRF-05-2023-0124 Accepted for publication: 17-Jan-2024. The AAM is deposited under the CC BY-NC 4.0 licence and any reuse is allowed in accordance with the terms outlined by the licence.
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Financial amplification mechanisms and the Federal Reserve's supply of liquidity during the crisis
The small decline in the value of mortgage-related assets relative to the large total losses associated with the financial crisis suggests the presence of financial amplification mechanisms, which allow relatively small shocks to propagate through the financial system. We review the literature on financial amplification mechanisms and discuss the Federal Reserve's interventions during different stages of the crisis in terms of this literature. We interpret the Fed's early-stage liquidity programs as working to dampen balance sheet amplifications arising from the positive feedback between financial and asset prices. By comparison, the Fed's later-stage crisis programs take into account adverse-selection amplifications that operate via increases in credit risk and the externality imposed by risky borrowers on safe ones. Finally, we provide new empirical evidence that increases in the amount outstanding of funds supplied by the Fed reduce the Libor-OIS spread during periods of high liquidity risk. In contrast, reductions in the Fed's liquidity supply in 2009 did not increase the spread. Our analysis has implications for the impact on asset prices of a potential withdrawal of liquidity supply by the Fed.
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The Liquidity Crisis: The 2007–2009 Market Impacts on Municipal Securities
In: Public administration review: PAR, Band 72, Heft 5, S. 668-677
ISSN: 1540-6210
This article surveys developments in the municipal debt market for their practical and conceptual implications for public financial managers and scholars. It provides an overview of the market crisis of 2007–9, focusing on what fiscal stress reveals about debt costs, the incidence of risk, and management methods. The first part focuses on the systemic factors—highly leveraged subprime mortgage instruments and collateralized debt obligations—that affected credit availability, interest costs, and the changing risk profiles of the debt instruments. The second part emphasizes the new institutional architecture of the borrowing environment: the collapse of the market for variable‐rated securities, the withdrawal from the market of traditional bond insurers, the diminished availability of credit enhancement instruments from banks, the demise of the standby bond purchase agreement, and the introduction of Build America Bonds. The article presents an agenda for practitioners and scholars as they face a borrowing future that differs markedly from that of the past.