This paper makes three main points. Fiscal policy, …rst, may be needed in the long run to maintain full employment and avoid secular stagnation. If …scal policy is used in this way, second, the long-run debt ratio depends (i) inversely on the rate of growth, (ii) inversely on government consumption, and (iii) directly on the degree of inequality. The analysis, third, suggests that policies and ...

Following mid-20 century predictions of Malthusian catastrophe, fertility in the developing world more than halved. We analyze how fertility change related to economic growth during this episode, using data on 2.3 million women from 255 surveys in 81 countries. We find different responses to fluctuations and long-run growth, both of them heterogeneous over the lifecycle. Fertility was procyclic...

Competition among stock exchanges has increased dramatically over the last decade. To attract trading volume, most exchanges introduced makertaker fees, an incentive scheme that rewards liquidity suppliers and charges liquidity demanders. Using a change in fees on the Toronto Stock Exchange, we analyze how the breakdown of trading fees between liquidity demanders and suppliers affects market ou...

We study the determination of liquidity provision in the single-name credit default swap (CDS) market as measured by the number of distinct dealers providing quotes. We find that liquidity is concentrated among large obligors and those near the investment-grade/speculative-grade cutoff. Consistent with endogenous liquidity provision by informed financial institutions, more liquidity is associat...

We model financial market liquidity as provided by financially constrained arbitrageurs. Market liquidity increases with the level of arbitrage capital, i.e., internal and external capital arbitrageurs can access frictionlessly. We show that liquidity dry-ups follow periods of low returns of arbitrageurs’ risky investment opportunities, and that liquidity is correlated across markets. A welfare...

The global financial crisis highlighted the importance of ensuring that the financial system has adequate liquidity to withstand adverse circumstances. The funding pressures that began in 2007 underlined the acute deficiencies in the liquidity-risk-management practices of some banks, and the severity of the ensuing crisis required massive public sector support to stem the liquidity spiral and m...

This paper contributes to the debate about the extent to which liquidity risk affects asset prices. Motivated by evidence on downward liquidity spirals, flights to liquidity and investor perceptions of risk, we develop and test a liquidity-adjusted capital asset pricing model in which the key innovation is separating liquidity risk into asymmetric upside and downside risks. Our model bridges th...

The importance of maintaining sufficient liquidity in financial markets is emphasised strongly in the academic literature. During the 1990s the United Kingdom monetary authorities introduced a number of structural reforms in the government bond market, aimed at improving secondary market liquidity. In this paper we examine the impact of the reforms by attempting to ascertain if liquidity levels...

Using a large data set on credit default swaps, we study how default risk interacts with interest-rate risk and liquidity risk to jointly determine the term structure of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit rating classes, and two liquidity groups. We develop a class of dynamic term structure models that include (i) two benchmark ...

The recent financial crisis has shown that liquidity risk is far more important and intricate than regulators had previously acknowledged. The shift from bankbased to market-based financial systems and from deferred net settlement systems to liquidity-demanding real-time gross settlement of payments explains some of the shortcomings of traditional liquidity risk management. Although liquidity r...