Financial Crisis, Equity Capital and the Liquidity Trap

2009 ◽  
Author(s):  
Oren Levintal
Keyword(s):  
Financial Crisis ◽  
Equity Capital ◽  
Liquidity Trap

The Liquidity Trap, Democracy and Central Bank Independence

2014 ◽  
Vol 61 (1) ◽  
pp. 16-29
Author(s):  
Lucian Croitoru
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Developed Countries ◽  
Central Banks ◽  
Central Bank Independence ◽  
The Other ◽  
Quantitative Easing ◽  
Potential Conflict ◽  
Liquidity Trap ◽  
Other Hand

Abstract In the wake of the financial crisis, central banks in developed countries performed unconventional operations that are fiscal in nature. On one hand, we support the view that such operations, which are not fully democratic, might lead to loss of central bank operational independence and discuss some difficulties that central banks might face when reversing quantitative easing. On the other hand, we show that, in the middle of a financial crisis, such operations are best performed by central banks. To avoid this potential conflict, the society needs to identify the best means by which the responsibility for quasi-fiscal operations implemented by the central bank is transferred to a democratic structure

scholarly journals Alternative Estimating Methodologies of the UK Industry Cost of Equity Capital: The Impact of 2007 Financial Crisis and Market Volatility

2015 ◽  
Vol 8 (1) ◽  
pp. 111
Author(s):  
Panayiota Koulafetis
Keyword(s):  
Financial Crisis ◽  
Equity Capital ◽  
Market Volatility ◽  
Pricing Model ◽  
Cost Of Equity Capital ◽  
Market Uncertainty ◽  
Cost Of Equity ◽  
Economic Forces ◽  
The Uk ◽  
The Impact

<p>We compare estimates of the UK industry cost of equity capital between the unconditional beta Arbitrage Pricing Model (APM), the conditional beta APM and the Capital Asset Pricing Model (CAPM). A statistically significant eight-factor APM leads to the best estimates of the UK industry cost of equity capital. During our full sample time period any of the APMs, unconditional APM or conditional APM, do a much better job than the CAPM.</p>However at times of extreme market volatility during the 2007 financial crisis, the conditional APM is the best model with the least errors. During a financial crisis investors and market participants’ expectations are revised. Economic forces at play include: increased market uncertainty, increased investors’ risk aversion and capital scarcity. We find that the macroeconomic factors impeded in the Conditional APM that vary over time using the latest information in the market, incorporate the economic forces at play and capture the extreme market volatility. Our findings have direct implications in the financial markets for regulators, corporate financial decision makers, corporations and governments.

Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach

2012 ◽  
Vol 102 (6) ◽  
pp. 2570-2605 ◽  
Author(s):  
Stephen D Williamson
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Financial Frictions ◽  
Open Market ◽  
Public And Private ◽  
Liquidity Trap ◽  
Friedman Rule ◽  
Crisis Phenomenon ◽  
Asset Purchases

A model of public and private liquidity integrates financial intermediation theory with a New Monetarist monetary framework. Non-passive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the Friedman rule. A liquidity trap can exist in equilibrium away from the Friedman rule, and there exists a permanent nonneutrality of money, driven by an illiquidity effect. Financial frictions can produce a financial-crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner. Private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income. (JEL E13, E44, E52, E62, G01)

scholarly journals The Italian banking foundations during the financial crisis: Some thoughts on corporate governance and accounting issues

2012 ◽  
Vol 10 (1) ◽  
pp. 547-556
Author(s):  
Nicola Moscariello
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Equity Capital ◽  
Income Smoothing ◽  
Financial Information ◽  
Investment Strategies ◽  
Negative Consequences ◽  
High Concentration ◽  
Financial Reports ◽  
Non Profit

Banking Foundations are both non-profit entities and key investors in Italian banks. Since the beginning of the 1990s, they have supported their banking concerns, receiving in exchange growing dividends used to finance their granting activity. However, the recent financial crisis has severely questioned this symbiotic relationship. Due to the high concentration of their resources in the equity capital of the Italian banks, Foundations have dramatically suffered the ongoing market downturn, cutting their grants by 50% in 2011, with negative consequences on the welfare of the local communities in which they operate. The poor attention traditionally showed by Banking Foundations on the adoption of risk diversification techniques is probably due to the existence of weak corporate governance mechanisms and to the lack of transparency characterizing their financial reports. Indeed, the adoption of accounting criteria exclusively based on historical data hampers the comparability of the financial information and allows income-smoothing techniques that threaten the stewardship function of the financial documents. Therefore, this paper proposes the introduction of a mark-to-market disclosure in the Banking Foundations’ financial statements, stressing the fundamental role that financial information based on current values can play in improving the accountability process and, consequently, in increasing the efficiency and the effectiveness of the investment strategies.

scholarly journals ECONOMIC POLICY TO OVERCOME STAGNATION AFTER THE FINANCIAL CRISIS

2021 ◽  
pp. 112-118
Author(s):  
V. D. Kuligin
Keyword(s):  
Financial Crisis ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Aggregate Demand ◽  
Market Mechanism ◽  
Entrepreneurial Activity ◽  
Monetary Incentives ◽  
Liquidity Trap ◽  
Downward Spiral ◽  
The Global Financial Crisis

The article considers the downward spiral of deflation, its causes and consequences. The paper discusses the compression of aggregate demand and the subsequent recession. The study discloses the content of the liquidity trap created by the behavior of borrowers. The author traces the connection between the events of the “lost decades” in Japan and the stagnation of production in leading Western countries after the global financial crisis. In both cases, the large-scale use of fiscal and monetary incentives did not cause a sharp rise in business activity. The paper concludes that the operation of the market mechanism is blocked by budget and monetary policies. Obstacles to entrepreneurial activity and energy lead to the loss of necessary information generated by market agents. This circumstance prolongs the stagnation of the economy.

scholarly journals Why the COVID-19 Pandemic Could Increase the Corporate Saving Trend in the Long Run

2021 ◽  
Vol 56 (1) ◽  
pp. 40-44
Author(s):  
Markus Demary ◽  
Stefan Hasenclever ◽  
Michael Hüther
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Equity Capital ◽  
Bank Loans ◽  
Long Run ◽  
Downward Pressure ◽  
Short Run ◽  
The Global Financial Crisis ◽  
Corporate Saving

AbstractGiven the global trend in corporate saving over the last decades, the COVID-19 crisis raises doubts about the persistence of companies’ saving behaviour due to the losses which have occurred in many companies caused by the isolation of households and by lockdowns. Before the pandemic, corporate net lending activities had been increasing for decades due to various factors ranging from the rise in uncertainty after the global financial crisis to the increased reliance on internal funding for research and development expenditures. In Germany, the rise in corporate saving was accompanied by an increase in equity capital and a reduction in the corporate sector’s reliance on bank loans. This article argues that the coronavirus crisis is most likely to interrupt the trend in corporate saving in the short run due to the decline in companies’ revenues. Nonetheless, similar to the pattern observed in the aftermath of the financial crisis, it seems reasonable to conjecture that the COVID-19 shock will strengthen corporate saving in the long run as companies may attempt to restore their liquidity and equity capital buffers to better prepare for future shocks. This will in turn create downward pressure on real interest rates and complicate the conduct of monetary policy.

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