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Implications of the liquidity crisis in the Baltic-Nordic region

Author

Listed:
  • Ivo Karilaid

    (Tallinn School of Economics and Business Administration (TSEBA) at Tallinn University of Technology)

  • Tõnn Talpsepp

    (Tallinn School of Economics and Business Administration (TSEBA) at Tallinn University of Technology)

  • Tarvo Vaarmets

    (Tallinn School of Economics and Business Administration (TSEBA) at Tallinn University of Technology)

Abstract

This paper provides a more thorough empirical examination of the development and determinants of the liquidity position in the financial sector during the last financial crisis in the Baltic-Nordic region, which takes into consideration the whole economic cycle. The current study serves as an extension to an ex-ante study which was made in 2010. We look at fiscal and monetary policy implications of the liquidity problems arising in the crisis and stabilization process after that. The results show that the changes (and the speed of changes) of interest rates, GDP and money supply have occurred relatively fast, meaning that the rising area of the LM curve has been shorter than theory would predict. Market reactions took place quickly and simultaneously – there was no time for the slow restructuring, thus liquidity needs were higher than generally.

Suggested Citation

  • Ivo Karilaid & Tõnn Talpsepp & Tarvo Vaarmets, 2014. "Implications of the liquidity crisis in the Baltic-Nordic region," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 14(1-2), pages 35-54, December.
    • Handle: RePEc:bic:journl:v:14:y:2014:i:1-2:p:35-54
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    File URL: http://www.tandfonline.com/doi/pdf/10.1080/1406099X.2014.949603
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    References listed on IDEAS

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    Cited by:

    1. Albulenë Kastrati, 2022. "Paradox of Excess Liquidity in European Emerging and Transition Economies," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(1), pages 79-114.
    2. Varaidzo Denhere & David Mhlanga, 2021. "The Use of Surrogate Currency to Address Liquidity Crisis: The Zimbabwean Experience," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(3), pages 159-169.
    3. Jasmina Ðuraškovic & Slavica Manic & Dejan Živkov, 2019. "Multiscale Volatility Transmission and Portfolio Construction Between the Baltic Stock Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(2), pages 211-235, April.

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    More about this item

    Keywords

    capital flows; financial crisis; liquidity position; policy implications;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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