Implications of the liquidity crisis in the Baltic-Nordic region

Abstract

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.

The investment behaviour of dairy farms in transition economies

“…The magnitude of these results for Estonian and Slovenian dairy farms is similar to that for all farms in these countries (Fertő et al, 2020). The small regression coefficients of the squared investment term for Estonian and Hungarian dairy farms indicate that under unstable macroeconomic conditions, such as financial and economic crises (Karilaid et al, 2014), and unstable sectoral and market conditions, such as the abolition of the milk quota in the EU and Russian bans on food imports from the EU, dairy farms use large discount rates in their investments. In contrast, a significantly negative and a greater-than-one in absolute value regression coefficient for squared investment suggests high capital adjustment costs for farms in Slovenia.…”

The Use of Surrogate Currency to Address Liquidity Crisis: The Zimbabwean Experience

“…They pointed out that the 2007-2009 financial crisis had severe implications on many countries, yet the Baltic States emerged as resistant to the crisis and were the fastest to recover. Karilaid et al (2014) concurred in a view with Cornett et al (2011) and Baglioni and Monticini (2010) that the Baltics were hit the most by the liquidity crisis and experienced more soaring interest rates, reduction in GDP, and decreasing money supply than the Nordic countries, a situation which Zimbabwe also experienced. Karilaid and Talpsepp (2010) asserted that high interest rates are associated with the lack of confidence amongst market participants as they lose faith in the banking system, and hence, there is a need for a sound fiscal policy that controls government expenditure, among other things.…”

“…The US dollar was hoarded and quickly disappeared from circulation leaving the bond note behind. Karilaid et al (2014) conducted a study on fiscal and monetary implications of the liquidity problems that arose in a financial crisis in the Baltic-Nordic region in Europe and stabilization after that. They pointed out that the 2007-2009 financial crisis had severe implications on many countries, yet the Baltic States emerged as resistant to the crisis and were the fastest to recover.…”

The Baltic banking system in the enlarged European Union: the effect of the financial crisis on efficiency

“…However, these countries have had a faster recovery than the other European countries: all of them have experienced a positive GDP growth every year since 2011. At the beginning of the financial crisis, the shock was amplified by the neighbouring larger economies pulling out their investments from the Baltic States when funds were needed in their home countries (Karilaid, Talpsepp, & Vaarmets, 2014). Foreign direct investments were an important tool to promote economic growth in the Baltic countries until the beginning of the financial crisis (Yucel, 2014), but these levels of investment declined sharply after 2008.…”

“…These banking sectors were well capitalized and mainly owned by strong foreign banks with good access to central bank liquidity assistance in their home markets (Hansson & Randveer, 2013). As a result, the money supply in the Baltic States (especially Estonia and Latvia) depended, to a high degree, on the actions of Swedish banks (Karilaid et al, 2014). As a consequence of this structure in their financial systems, the Baltic countries have had few banking problems, and the effects of suspensions of bank activities on the financial system were negligible (Balkevicius, 2014).…”