Transmission of Liquidity Shocks : Evidence from the 2007 Subprime Crisis

Author/Editor:

Heiko Hesse ; Nathaniel Frank ; Brenda Gonzalez-Hermosillo

Publication Date:

August 1, 2008

Electronic Access:

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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.

Series:

Working Paper No. 08/200

Subject:

Banks Credit Economic models External shocks Financial crisis Financial institutions Liquidity management Spillovers

English

Publication Date:

August 1, 2008

ISBN/ISSN:

9781451870589/1018-5941

Stock No:

WPIEA2008200

Format:

Paper

Pages:

21

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