Liquidity, leverage and macro risk
The realignment of the global economy has been most evident in the large adjustments of exchange rates. The Annual Report examines how these exchange rate adjustments have been both a symptom of and a catalyst for recent events. Apparently disparate issues, such as market liquidity, currency market anomalies and the risk-taking capacity of financial intermediaries, can be understood better by reference to a few common themes, especially the role of accumulated stocks in accentuating the impact of shocks. Our findings reinforce the macroeconomic rationale for prudential policy. A better capitalised financial sector is conducive not only to greater resilience of the financial system, but also to greater risk-taking capacity in support of more liquid financial markets and better macro outcomes.
- Presentation slides (12 pages, 488 kb)