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Liquidity connectedness and output synchronisation

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  • Inekwe, John Nkwoma

Abstract

The paper examines the transmission of liquidity shocks across a panel of countries and explores the power of liquidity spillovers in generating output synchronisation. Using the information on stocks, we generate aggregate stock liquidity indices in 24 countries. From the error variance decomposition, we find that countries transmit liquidity shocks across each other, and the European countries have higher cross-variance shares. We find that the transmission of liquidity shocks across economies yields a divergence in output. A standard deviation increase in liquidity connectedness lowers the co-movement in output. Thus, liquidity transfers have economic implications.

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  • Inekwe, John Nkwoma, 2020. "Liquidity connectedness and output synchronisation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).
  • Handle: RePEc:eee:intfin:v:66:y:2020:i:c:s1042443120300925
    DOI: 10.1016/j.intfin.2020.101208
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    1. Bhattacharya, Mita & Inekwe, John Nkwoma & Valenzuela, Maria Rebecca, 2020. "Credit risk and financial integration: An application of network analysis," International Review of Financial Analysis, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Liquidity; Spillovers; Output Convergence;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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