In this paper an equation for the free liquidity ratio for commercial banks has been estimated with Italian data, following the "general-to-specific" methodology. The theoretical justifications for the specification of the model have been provided not only by the traditional walth allocation theory, but also by the recent literature on irreversible investment under uncertainty conditions. In this context, the bank free reserves have been interpreted as temporary liquid assets hel for transactionary purposes, or in the decision process which preceeds those financial investments involving a partial degree of irreversibility, due to the intrinsic uncertainty that characterizes bank credit and financial investments.
Free liquidity ratio for commercial banks: an estimate with Italian data
MAZZOLI, MARCO
1991-01-01
Abstract
In this paper an equation for the free liquidity ratio for commercial banks has been estimated with Italian data, following the "general-to-specific" methodology. The theoretical justifications for the specification of the model have been provided not only by the traditional walth allocation theory, but also by the recent literature on irreversible investment under uncertainty conditions. In this context, the bank free reserves have been interpreted as temporary liquid assets hel for transactionary purposes, or in the decision process which preceeds those financial investments involving a partial degree of irreversibility, due to the intrinsic uncertainty that characterizes bank credit and financial investments.
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