Transmission of Liquidity Shocks; Evidence from the 2007 Subprime Crisis
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.
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- Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006.
"Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns,"
Journal of Financial Econometrics,
Society for Financial Econometrics, vol. 4(4), pages 537-572.
- Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series 0204, European Central Bank.
- Paul S. Mills & John Kiff, 2007. "Money for Nothing and Checks for Free; Recent Developments in U.S. Subprime Mortgage Markets," IMF Working Papers 07/188, International Monetary Fund.
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