Transmission of Liquidity Shocks: Evidence from the 2007 Subprime Crisis

By Heiko Hesse, Nathaniel Frank, Brenda Gonzalez-Hermosillo

August 1, 2008

Preview Citation

Format: Chicago

Heiko Hesse, Nathaniel Frank, and Brenda Gonzalez-Hermosillo. Transmission of Liquidity Shocks: Evidence from the 2007 Subprime Crisis, (USA: International Monetary Fund, 2008) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the linkages between market and funding liquidity pressures, as well as their interaction with solvency issues surrounding key financial institutions during the 2007 subprime crisis. A multivariate GARCH model is estimated in order to test for the transmission of liquidity shocks across U.S. financial markets. It is found that the interaction between market and funding illiquidity increases sharply during the recent period of financial turbulence, and that bank solvency becomes important.

Subject: Banking, Financial crises, Liquidity, Liquidity risk, Stock markets

Keywords: Liquidity shock, Market, Market liquidity, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/200
Stock No:

WPIEA2008200
ISBN:

9781451870589
ISSN:

1018-5941

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