Real Effects of the Subprime Mortgage Crisis : Is it a Demand or a Finance Shock?.
Title:
Real Effects of the Subprime Mortgage Crisis : Is it a Demand or a Finance Shock?.
Author:
Tong, Hui.
ISBN:
9781451914979
Personal Author:
Physical Description:
1 online resource (39 pages)
Series:
IMF Working Papers
Contents:
Contents -- I. Introduction -- II. Specification and Key Variables -- A. Basic Specification -- B. Key Data -- III. Empirical Analysis -- A. Basic Results -- B. Evolving Roles of Liquidity Constraint and Demand Contractions -- C. Alternative Measure of Financial Dependence -- D. Placebo Tests -- E. Exposures to Exchange Rate and Commodity Price Movement -- F. Additional Robustness Checks and Extensions -- IV. Conclusion -- References -- Tables -- 1a. Summary Statistics -- 1b. Correlation Among Variables -- 2. Change in Stock Price during the Subprime Crisis -- 3. Alternative Measure of Financial Dependence -- 4. Does Liquidity Constraint Explain Changes in Stock Prices During September 10-28, 2001? -- 5. Placebo Tests: Stock Price Changes Before the Subprime Crises -- 6. Adding Exposures to Exchange Rate and Commodity Price Movement -- Figures -- 1. The Log of Stock Index during Subprime Crisis -- 2. News Count of "Subprime" and "Crisis" -- 3. Consensus Forecast of U.S. Real GDP Growth -- 4. Consumer Confidence around Sept. 11th and Subprime Crisis -- 5. TED (Euro-dollar bond over Treasury Bond) spread around September 11th and Subprime Crisis -- 6. Cumulative Stock Returns Since August 2007 -- 7. Key Regression Coefficients from Successively Expanding Samples.
Abstract:
We develop a methodology to study how the subprime crisis spills over to the real economy. Does it manifest itself primarily through reducing consumer demand or through tightening liquidity constraint on non-financial firms? Since most non-financial firms have much larger cash holding than before, they appear unlikely to face significant liquidity constraint. We propose a methodology to estimate these two channels of spillovers. We first propose an index of a firm's sensitivity to consumer demand, 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). We find that both channels are at work, but a tightened liquidity squeeze is economically more important than a reduced consumer spending in explaining cross firm differences in stock price declines.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
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