TY - JOUR
T1 - UNDERSTANDING THE MACROECONOMIC IMPACT OF ILLIQUIDITY SHOCKS IN THE UNITED STATES
AU - Yen, Chia Yi
AU - Chou, Yu Hsi
N1 - Publisher Copyright:
© 2020 Western Economic Association International
Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2020/1/1
Y1 - 2020/1/1
N2 - In this paper, we empirically investigate the role of stock market illiquidity shocks, stemming from Amihud's illiquidity measure, in explaining U.S. macroeconomic fluctuations from 1973 to 2018. We find that the impact of illiquidity shocks on economic activity is substantial, and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the Great Recession. Moreover, our identified illiquidity shocks represent a distinct source of macroeconomic instability. This suggests that illiquidity shocks, measured by the stock price impacts, may contain more information than other types of shocks in recent studies, such as financial shocks and uncertainty shocks. (JEL C32, E32).
AB - In this paper, we empirically investigate the role of stock market illiquidity shocks, stemming from Amihud's illiquidity measure, in explaining U.S. macroeconomic fluctuations from 1973 to 2018. We find that the impact of illiquidity shocks on economic activity is substantial, and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the Great Recession. Moreover, our identified illiquidity shocks represent a distinct source of macroeconomic instability. This suggests that illiquidity shocks, measured by the stock price impacts, may contain more information than other types of shocks in recent studies, such as financial shocks and uncertainty shocks. (JEL C32, E32).
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UR - https://www.mendeley.com/catalogue/6f596cb7-ee2b-3638-bc2e-743d8c8998a1/
U2 - 10.1111/ecin.12890
DO - 10.1111/ecin.12890
M3 - Article
AN - SCOPUS:85081389498
VL - 58
SP - 1245
EP - 1278
JO - Economic Inquiry
JF - Economic Inquiry
SN - 0095-2583
IS - 3
ER -