Liquidity, Risk and the Global Transmission of the 2007–08 Financial Crisis and the 2010–11 Sovereign Debt Crisis

Financial crisis, US unconventional monetary policy and international spillovers

“…9 Examples include Pesaran and Smith (2006) and Dees, di Mauro, Smith and Pesaran (2007), where the 90% bootstrapped error bands around the mean estimates of impulse responses are generally large and include zero. Chudik and Fratzscher (2012) instead use the 25th and 75th percentiles as the range of their error bands. 10 We compute bootstrap confidence intervals with 5000 iterations and provide 90% bootstrapped error bands for the median impulse response estimates.…”

Interdependence and Contagion in Global Asset Markets

“…They find that liquidity shocks impact most notably on advanced economies, while declines in risk appetite affect emerging economies most severely. Chudik and Fratzscher (2011b) use an infinite-dimensional VAR methodology to examine changes in the transmission of liquidity and risk shocks on financial markets between the 2007-08 financial crisis and the 2010-11 sovereign debt crisis. The authors find fundamental differences between those two crises.…”

“…In all cases the eigenvalues are below one implying a stable system in crisis times and throughout the whole sample. When we apply the measure of overall persistence, such as that carried out in Chudik and Fratzscher (2011b) which is based on the estimated eigenvalues, in the US equity market, the within-market (i.e. from the US equity market to regional equity markets) impulse response functions are greater in magnitude in crisis times by a factor of about four across regions (see Fig.…”

Capital Flows, Cross-Border Banking and Global Liquidity

“…Chudik and Fratzscher (2012) …nd that the US crisis di¤ers from the European crisis in terms of their dynamic properties. In addition, the years 2007 and 2008 saw a rapid deleveraging of the US broker dealer balance sheets.…”