Financial Market Illiquidity Shocks and Macroeconomic Dynamics: Evidence from the UK

Ellington, MT (2018) Financial Market Illiquidity Shocks and Macroeconomic Dynamics: Evidence from the UK. Journal of Banking and Finance. ISSN 0169-6939

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Abstract

We examine the link between financial market illiquidity and macroeconomic dynamics by fitting a Bayesian time-varying parameter VAR with stochastic volatility to UK data from 1988Q1 to 2016Q4. We capture liquidity conditions in the stock market using a battery of illiquidity proxies. This paper departs from previous studies examining macro-financial linkages by using theoretically grounded sign restrictions, and conducting structural inference in a non-linear framework. We document both statistically significant differences in the transmission of these shocks, and substantial increases in the economic importance of these shocks during the 2008 recession.

Item Type:	Article
Depositing User:	Symplectic Admin
Date Deposited:	27 Feb 2018 08:38
Last Modified:	19 Jan 2023 06:39
DOI:	10.1016/j.jbankfin.2018.02.013
Open Access URL:	https://doi.org/10.1016/j.jbankfin.2018.02.013
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3018435

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• Financial Market Illiquidity Shocks and Macroeconomic Dynamics: Evidence from the UK. (deposited 27 Feb 2018 08:38) [Currently Displayed]
  • Financial Market Illiquidity Shocks and Macroeconomic Dynamics: Evidence from the UK. (deposited 27 Feb 2018 14:58)