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


Ellington, MT ORCID: 0000-0003-0264-7572 (2018) Financial Market Illiquidity Shocks and Macroeconomic Dynamics: Evidence from the UK Journal of Banking and Finance, 89. pp. 225-236. ISSN 0378-4266, 1872-6372

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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
Additional Information: Source info: Journal of Banking and Finance, Forthcoming
Uncontrolled Keywords: Stock market illiquidity, Time-varying parameter VAR, Macro-financial linkages, Sign restrictions
Depositing User: Symplectic Admin
Date Deposited: 27 Feb 2018 14:58
Last Modified: 28 Feb 2026 15:19
DOI: 10.1016/j.jbankfin.2018.02.013
Open Access URL: https://doi.org/10.1016/j.jbankfin.2018.02.013
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URI: https://livrepository.liverpool.ac.uk/id/eprint/3018449
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