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CF Workshop - by Ivano Cardinale & Roberto Scazzieri - "Structural liquidity: Time coordination of economic activities and sectoral interdependence"

When Feb 05, 2013
from 05:00 PM to 06:00 PM
Where Barbara White Room, Newnham College
Contact Name
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Ivano Cardinale (Emmanuel College), Roberto Scazzieri (University of Bologna and Gonville and Caius College)

Title: "Structural liquidity: Time coordination of economic activities and sectoral interdependence"

Investigating the links between the financial and real spheres of the economy is especially relevant during
crises. In this paper we concentrate on how liquidity impacts the real economy. Such impact is usually
discussed in terms of microeconomic decision making (liquidity as a feature of portfolio management) and
macroeconomic policy making (liquidity provision as an outcome of policy choice). What is generally
missing is the analysis of liquidity mechanisms at intermediate levels of aggregation. Yet it is at the level of
the interdependencies between economic sectors that liquidity arrangements are of central importance in
determining the overall performance of any given economic system. This paper outlines a conceptual
framework for structural liquidity analysis with the aim of overcoming the micro-macro divide. The strategy
of the paper is as follows. First, we call attention to liquidity as a feature of the relationships between
economic sectors: economic systems are more or less liquid depending on the degree of flexibility between
sectors that the system’s architecture allows. Second, we emphasize that different sectors have different
liquidity requirements (short-term versus long-term liquidity) depending upon the composition of their
respective capital stocks (as expressed by the relationship between fixed and circulating capital). Finally, we
draw some political-economic implications of our framework. As a result of their liquidity requirements,
different sectors might have different interests in terms of the liquidity policies adopted by national or
supranational authorities. This suggests another route to explaining the formation of decisions concerning
liquidity in an economy – one that is based on the patterns of interdependencies among sectors and
asymmetries in the composition of capital stocks.

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