Real Effects of the Subprime Mortgage Crisis : Is it a Demand or a Finance Shock? / Hui Tong, Shang-Jin Wei.

Format:

Book

Government document

Author/Creator:

Tong, Hui.

Contributor:

Wei, Shang-Jin.

Series:

IMF Working Papers; Working Paper ; No. 2008/186

IMF working paper ; WP/08/186

IMF Working Papers

Language:

English

Subjects (All):

Financial crises--Economic aspects.

Financial crises.

Liquidity (Economics).

Subprime mortgage loans--Economic aspects--United States.

Subprime mortgage loans.

Physical Description:

1 online resource (39 p.)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2008.

Language Note:

English

Summary:

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.

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

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on online resource; title from PDF title page (ebrary, viewed February 27, 2014).

ISBN:

9786612841378

9781462332588

1462332587

9781452762197

1452762198

9781451870442

1451870442

9781282841376

1282841378

OCLC:

465403458