Economics at your fingertips  

Financial market illiquidity shocks and macroeconomic dynamics: Evidence from the UK

Michael Ellington

Journal of Banking & Finance, 2018, vol. 89, issue C, 225-236

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.

Keywords: Stock market illiquidity; Time-varying parameter VAR; Macro-financial linkages; Sign restrictions (search for similar items in EconPapers)
JEL-codes: E32 E44 E47 E52 E58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-06-15
Handle: RePEc:eee:jbfina:v:89:y:2018:i:c:p:225-236