Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/60918 
Year of Publication: 
2008
Series/Report no.: 
Staff Report No. 328
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, eliciting responses from financial intermediaries who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos - the primary margin of adjustment for the aggregate balance sheets of intermediaries - forecast changes in financial market risk as measured by the innovations in the Chicago Board Options Exchange Volatility Index (VIX). Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
Subjects: 
Financial market liquidity
financial cycles
financial intermediary leverage
JEL: 
E32
E44
G10
G20
Document Type: 
Working Paper

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