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"We develop a methodology to study whether and how a financial-sector crisis can spill over to the real economy, and apply it to the case of the ongoing subprime mortgage crisis. If there is a spillover, does it manifest itself primarily by reducing consumer confidence and consumer demand? Is there also a supply-side channel through a tightened liquidity constraint faced by non-financial firms? Since most firms appear to have much larger cash holdings than in the past, some suggest that a liquidity constraint is not likely to be a significant factor for non-financial firms. We propose a methodology to estimate the importance of these two channels for spillovers. We first propose an index of a firm's sensitivity to a shock to consumer confidence, based on its response to the 9/11 shock in 2001. We then construct a separate firm-level index on financial constraint based on Whited and Wu (2006). As a robustness check, we also construct an alternative sector-level index of a firm's intrinsic demand for external finance, based on the work of Rajan and Zingales (1998). We find robust evidence suggesting that both channels are at work, but that a tightened liquidity squeeze appears to be economically more important than reduced consumer confidence or spending in explaining cross-firm differences in stock price declines"--National Bureau of Economic Research web site.
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1
Real Effects of the Subprime Mortgage Crisis: Is It a Demand or a Finance Shock?
2008, International Monetary Fund
in English
1452762198 9781452762197
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2
Real Effects of the Subprime Mortgage Crisis: Is It a Demand or a Finance Shock?
2008, International Monetary Fund
in English
1451870442 9781451870442
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3
Real effects of the subprime mortgage crisis: is it a demand or a finance shock?
2008, National Bureau of Economic Research
Electronic resource
in English
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4
Real Effects of the Subprime Mortgage Crisis: Is It a Demand or a Finance Shock?
2008, International Monetary Fund
in English
1451914970 9781451914979
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Book Details
Edition Notes
Title from PDF file as viewed on 8/8/2008.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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