| Date: |
2017 |
| Abstract: |
This paper analyzes the Eurozone financial crisis through the lens of sovereign bond liquidity. Using novel data, I show that repo haircuts on peripheral government bonds sharply increased during the crisis, reducing their liquidity and amplifying the rise in their yields. I study the impact of this liquidity shock on asset prices and macroeconomic variables in a general equilibrium model with financial frictions calibrated for Ireland. The model confirms the rise in the required returns of illiquid government bonds and predicts a substantial drop in economic activity and deflation. Unconventional policy alleviates the effect of the liquidity shock. |
| Abstract: |
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396. |
| Grants: |
European Commission 649396
|
| Rights: |
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.  |
| Language: |
Anglès |
| Series: |
Barcelona Graduate School of Economics. ADEMU working paper series |
| Series: |
ADEMU Working Paper Series ; 72 |
| Document: |
Working paper |
| Subject: |
Repo ;
Haircuts ;
Liquidity shock ;
Funding constraint ;
Unconventional policy |
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