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Stock Market Liquidity and the Macroeconomy : Evidence from Japan
Authors: --- --- ---
ISBN: 1462337732 1451984340 1282108085 9786613801432 1451905610 Year: 2005 Publisher: Washington, D.C. : International Monetary Fund,

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Abstract

In a liquid financial market, investors are able to sell large blocks of assets without substantially changing the price. We document a steep drop in the liquidity of the Japanese stock market in the post-bubble period and a steep rise in liquidity risk. We find that, during Japan's deflationary period, firms with more liquid balance sheets were less exposed to stock market liquidity risk, while slowly growing firms were highly exposed to liquidity shocks. Also, aggregate liquidity had macroeconomic effects on aggregate demand through its effect on money demand.

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