Understanding foreign exchange markets is key to understanding the global financial system. Yet, a clear understanding of why and how foreign exchange illiquidity materialises is still missing. This column suggests that foreign exchange liquidity can be impaired in times of flight to quality and higher global risk, and that commonality increases in distressed markets.
Nina Karnaukh, Angelo Ranaldo, Paul Söderlind, Thursday, September 10, 2015 - 00:00
Antonio Acconcia, Giancarlo Corsetti, Saverio Simonelli, Friday, August 14, 2015 - 00:00
Fiscal transfers are successful in stimulating aggregate demand to the extent that they reach households with a high marginal propensity to consume. Using micro evidence from Italian earthquakes, this column argues that a well-designed programme of temporary transfers, targeted to relatively wealthy but possibly illiquid households, can be quite helpful in speeding up recovery.
Bastian von Beschwitz, Donald B. Keim, Massimo Massa, Thursday, July 2, 2015 - 00:00
High-frequency news analytics can increase market efficiency by allowing traders to react faster to new information. One concern about such services is that they might provide a competitive advantage to their users with potential distortionary price effects. This column looks at how high frequency news analytics affect the stock market, net of the informational content that they provide. News analytics improve price efficiency, but at the cost of reducing liquidity and with potentially distortionary price effects.
Clemens Jobst, Stefano Ugolini, Tuesday, June 23, 2015 - 00:00
Central banks today provide liquidity exclusively through purchases of (mostly) government bonds and through collateralised open-market operations. This column considers the evolution of liquidity provision by central banks over the past two centuries, and argues that there are alternative approaches to those that are focused on today. One such alternative is a revival of the 19th century practice of uncollateralised lending. This would discourage market participants from relying on informational shortcuts, and reduce the likelihood that informational shocks trigger collateral crises.
Philippe Bacchetta, Kenza Benhima, Céline Poilly, Thursday, February 19, 2015 - 00:00
Philippe Karam, Ouarda Merrouche, Moez Souissi, Rima Turk, Monday, February 2, 2015 - 00:00
Yunus Aksoy, Henrique Basso, Thursday, January 29, 2015 - 00:00
Dirk Niepelt, Wednesday, January 21, 2015 - 00:00
Xavier Vives, Monday, December 22, 2014 - 00:00
Ron Alquist, Rahul Mukherjee, Linda Tesar, Monday, December 22, 2014 - 00:00
Jean-Pierre Landau, Tuesday, December 2, 2014 - 00:00
Olivier Blanchard, Friday, October 3, 2014 - 00:00
Marius Zoican, Saturday, September 20, 2014 - 00:00
Alan Moreira, Alexi Savov, Tuesday, September 16, 2014 - 00:00
Giovanni Cespa, Xavier Vives, Tuesday, April 22, 2014 - 00:00
Since capital flows to and from hedge funds are strongly related to past performance, an exogenous liquidity shock can trigger a vicious cycle of outflows and declining performance. Therefore, ‘noise’ trades – usually thought of as erratic – may in fact be persistent. Based on recent research, this column argues that there can be multiple equilibria with different levels of liquidity and informational efficiency, and that the high-information equilibrium can under certain conditions be unstable. The model provides a lens through which to interpret the ‘Quant Meltdown’ of August 2007 and the recent financial crisis.
Stefan W Schmitz, Heiko Hesse, Friday, February 28, 2014 - 00:00
Europe aims to implement Liquidity Coverage Ratio regulation by the end of 2014. This column discusses recent evidence on its impact. It finds that EU banks have not adjusted by reducing lending to the real economy, to SMEs, or to trade finance. Despite this adjustment, substantial liquidity risk exposure remains. Overall, the benefits of the LCR outweigh the costs by far.
Clemens Bonner, Thursday, February 6, 2014 - 00:00
Liquidity risks can be a primary source of bank failures. As such, there are arguments not to rely on a single metric for providing supervision. This column describes research on detailed cases of failed and near-failed institutions, which helps highlight gaps in current practices of liquidity stress testing. It also gives guidance on how to design liquidity stress tests. Deposit insurance coverage, the heterogeneity of lending commitments, distinction between different types of repos, committed facilities, and derivative transactions should receive increased attention when designing liquidity stress tests.
Clemens Bonner, Iman van Lelyveld, Robert Zymek, Friday, November 1, 2013 - 00:00
What are the determinants of banks’ liquidity holdings and how are these reshaped by liquidity regulation? Based on a sample of 7,000 banks in 30 OECD countries, this column argues that banks’ liquidity buffers are determined by a combination of both bank- and country-specific variables. The presence of liquidity regulation substitutes for most of these determinants while complementing the role of size and institutions’ disclosure requirements. The complementary nature of disclosure and liquidity requirements provides a strong rationale for considering them jointly in the design of regulation.
Clemens Bonner, Sylvester Eijffinger, Monday, October 14, 2013 - 00:00
Liquidity requirements like the Basel III Liquidity Coverage Ratio are aimed at reducing banks’ reliance on short-term funding. This may have implications for the implementation of monetary policy, which usually operates through short-term interbank interest rates. This column looks at how banks reacted to the Dutch quantitative liquidity requirement. The authors conclude that liquidity requirements will only reduce overnight interest rates if they cause an aggregate liquidity shortage.
Edwin M. Truman, Tuesday, September 10, 2013 - 00:00
Should we expect more global financial crises? This column argues that we should. Global financial crises are far from being a thing of the past because they are often caused by buildups of excessive domestic and foreign debt. To successfully address them and to limit negative spillovers, we need coordinated actions that prevent a contraction in global liquidity. Unless we establish this more robust, coordinated global financial safety net centred on central banks (which is where the money is), we may end up being incapable of addressing inevitable future crises.