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The Impact of Fair Value Accounting On Financial Stability:Lessons from US Financial Crisis

ZHENG Ming1, NI Yu-juan2, LIU Lin2(1.Wang Yanan Institute for Studies in Economics, XiamenUniversity,Xiamen 361005, China;2. Department of Finance,Xiamen University, Xiamen 361005, China)  
Fair value accounting functions as the reflection of current transaction prices of assets and liabilities, and the signaling role to investors. Based on the above dualistic functions of fair value accounting, the paper constructs an equilibrium model and demonstrates the defects of fair value accounting to a certain extent, namely, endogenous resonance effect and the promotion of market volatility. In the booming market, fair value accounting will promote the further increase of asset prices. When an economic crisis occurs, especially because of the resonance effect, it will make the crisis worse off
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