Can policy improve liquidity during a financial crisis?

Ivo Karilaid () and Tõnn Talpsepp ()
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Ivo Karilaid: Tallinn School of Economics and Business Administration (TSEBA) at Tallinn University of Technology
Tõnn Talpsepp: Tallinn School of Economics and Business Administration (TSEBA) at Tallinn University of Technology

Baltic Journal of Economics, 2010, vol. 10, issue 2, 5-26

Abstract: This paper empirically examines the development and determinants of the liquidity position in the financial sector during the recent financial crisis in the Baltic-Scandinavian region. We look at fiscal and monetary policy implications of liquidity problems arising in the crisis. The results are consistent with theoretical predictions for a small open economy with the expected sign of changes and developments in common economic indicators. Changes (and the speed of changes) in interest rates, GDP and money supply have occurred relatively rapidly, meaning that the rising area of the LM-curve has been shorter than theory would predict. Market reactions took place quickly and simultaneously – there was no time for slow restructuring, so that liquidity needs were higher than usual.

Keywords: financial crisis; policy implications; liquidity position; capital flows (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:10:y:2010:i:2:p:5-26

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