Liquidity Shocks and Real GDP Growth: Evidence from a Bayesian Time-varying Parameter VAR

Ellington, MT ORCID: 0000-0003-0264-7572, Milas, ORCID: 0000-0002-9789-384X and Florakis, ORCID: 0000-0002-1290-4168 (2017) Liquidity Shocks and Real GDP Growth: Evidence from a Bayesian Time-varying Parameter VAR. Journal of International Money and Finance, 72. pp. 93-117.

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Abstract

We examine the dynamic impact of liquidity shocks resonating in stock and housing mar-kets on real GDP growth. We fit a Bayesian time-varying parameter VAR model withstochastic volatility to US data from 1970 to 2014. GDP becomes highly sensitive to housemarket liquidity shocks as disruptions in the sector start to emerge, yet more resilient tostock market liquidity shocks throughout time. We provide substantial evidence in favourof asymmetric responses of GDP growth both across the business cycle, and among busi-ness cycle troughs. Stock and house market liquidity shocks explain, on average, 17%and 35% of the variation in GDP during the Great Recession, respectively.

Item Type:	Article
Additional Information:	Source info: Journal of International Money and Finance, Forthcoming
Uncontrolled Keywords:	Stock market liquidity, House market liquidity, Liquidity shocks, Time-varying parameter VAR
Depositing User:	Symplectic Admin
Date Deposited:	23 Dec 2016 15:20
Last Modified:	04 Mar 2024 08:54
DOI:	10.1016/j.jimonfin.2016.12.002
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3004997