Schmalenbach Business Review

, Volume 17, Issue 3–4, pp 261–284 | Cite as

Illiquidity Transmission in a Three-Country Framework: A Conditional Approach

Original Article

Abstract

In this paper we investigate the causality of liquidity in a three-country framework. Due to evidence that liquidity is of greater importance during crises and to provide a deeper insight into the dynamics of liquidity shocks between the United States, Germany, and the United Kingdom, we estimate a Markov-switching vector autoregression model and calculate impulse response functions for different economic states. Indeed, we find liquidity spillovers to be more pronounced during unstable periods and identify the leading role of the United States. Moreover, we use numerous macroeconomic and financial market variables to analyze the specific factors behind liquidity. The overall economic outlook and the condition of the U.S. financial market turn out to be important.

Keywords

Liquidity Spillover Multi-Country Slow-Moving Capital Regime-Switching Drivers of Liquidity 

JEL-Classification

G01 G12 G15 

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Copyright information

© Schmalenbach-Gesellschaft für Betriebswirtschaft e.V. (SG) 2016

Authors and Affiliations

  1. 1.Karlsruhe Institute of Technology (KIT)KarlsruheGermany

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