This paper provides a more thorough empirical examination of the development and determinants of the liquidity position in the financial sector during the last financial crisis in the Baltic-Nordic region, which takes into consideration the whole economic cycle. The current study serves as an extension to an ex-ante study which was made in 2010. We look at fiscal and monetary policy implications of the liquidity problems arising in the crisis and stabilization process after that. The results show that the changes (and the speed of changes) of interest rates, GDP and money supply have occurred relatively fast, 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 the slow restructuring, thus liquidity needs were higher than generally.
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.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.