In finance, liquidity is a concept with many interpretations, and many uses. Following the recent financial crisis there has been a huge increase in research on liquidity related topics both with respect to macro liquidity, funding liquidity, the liquidity of different asset classes and markets as well as the flow of funds between different assets and markets.
In this paper we look at the link between equity market liquidity and the real economy. In the discussion of the current financial crisis, much attention has been on the apparent casual effect from a dry up in the liquidity of financial assets to the crisis of the economy. Nes et al. [2009b] show that such links between aggregate stock market liquidity and the macro economy are not new, rather, they have been a stable feature of the US stock market at least since the Second World War. They show, using data for the US from 1947 through 2008, that equity market liquidity is a very good leading indicator of the real economy. We look at similar issues using data from the Norwegian equity market (Oslo Stock Exchange – OSE). We examine the liquidity of the Norwegian equity market represented by the stocks listed on the OSE over the period 1980 through 2008.
Powerful applications such as Microsoft Office’s Excel and Word are widely used to perform common tasks in the workplace and in education. Scripting within these applications allows unanticipated user requirements to be addressed. We show that such extensibility, intended to support office automation-type applications, is well suited to the creation of learning activities and learning environments. We have developed a range of tutorial activities using Excel and Word in introductory mathematics, writing and economics courses. These tutorials have the dual purpose of teaching academic concepts and practical computer literacy skills. The software architecture of our learning environment includes a database-supported back-end to automatically record students’ responses, which allows for greater control over what students do.
Additionally, this allows one to automate common procedures to improve usability and feedback automation to support learning. We have been applying our ideas for the last six years and currently 1,500 students are using the environment. We suggest that this pragmatic solution can provide a high degree of interactivity and flexibility in a range of learning contexts that represents a cost-effective alternative for use alongside traditional approaches.
The excess volatility puzzle (Shiller, 1981, and LeRoy and Porter, 1981) and the equity premium puzzle (Mehra and Prescott, 1985) are two fundamental challenges to theoretical models that have been developed in the finance and macroeconomics literature. Building a production economy model that would satisfactorily account for both high aggregate stock market volatility and the behavior of aggregate quantities has proven to be difficult and no consensus model has arisen. In this paper we build a model in which variations in firms’ ability to raise external capital to take profitable projects lead to asset price volatility. We calibrate the model to the U.S. data and find that it generates about 80% of the observed aggregate stock market volatility. At the same time, the model generates time-series properties of aggregate quantities that match the macroeconomic data.
Our model closely resembles the model described in Kiyotaki and Moore (2008). It is a dynamic stochastic general equilibrium model with heterogeneous entrepreneurs, who face a real and a financial friction. The real friction restricts entrepreneurs’ access to new projects. In every period only a fraction of entrepreneurs find new profitable projects. Following the literature, we assume that the arrival of profitable projects is i.i.d. over time and over entrepreneurs, see e.g. Angeletos (2007) and Kocherlakota (2009). We model an entrepreneur’s ability to start a profitable project as his ability to produce new capital goods one-to-one from the general consumption good. Entrepreneurs who cannot produce capital are willing to buy claims to returns of other entrepreneurs’ projects to replace their depreciated capital. We call these claims equity. Markets are incomplete and equity is the only financial asset that is traded in the economy. The financial friction restricts new issuance of equity. We assume that entrepreneurs can only leverage a fraction of the returns of the newly produced capital, i.e. sell only a fraction of the new project as equity. On its own, this friction is standard in the literature. The novel feature of our model is that the ratio of outside to total financing of projects changes over time.
