Liquidity and the business cycle: Empirical evidence from the Greek banking sector

In the aftermath of the global financial turmoil the negative market sentiment and the challenging macroeconomic environment in Greece have severely affected the banking sector, which faces funding and liquidity challenges, deteriorating asset quality, and weakening profitability. This paper aims to investigate how banks? liquidity interacted with solvency and the business cycle during the period 2004-2010. To this end a panel of 17 Greek banks is utilized which, in conjunction with cointegrating techniques and one-way static and dynamic panel models, explores the presence and the strength of the relationship between banks? liquidity and the business cycle, while allowing for the role of banks? solvency. Addressing the liquidity risk of the Greek banking sector and the liquidity-solvency nexus remains largely an uncharted area. The results generated provide clear-cut evidence on the linkages between banks? market liquidity and the business cycle, as reflected in the real GDP and the effective exchange rate. Yet the results display a transmission channel that runs from banks? solvency to liquidity and from country risk to bank risk.

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EXPANSIONS AND RECESSIONS IN THE MEXICAN STATES: A CLASSICAL BUSINESS CYCLES APPROACH

PANORAMA ECONÓMICO ◽

10.29201/pe-ipn.v3i5.120 ◽

2017 ◽

Vol 3 (5) ◽

pp. 32

Author(s):

Pablo Mejía-Reyes

Keyword(s):

Business Cycles ◽

Business Cycle ◽

Monthly Basis ◽

Production Index ◽

Clear Cut ◽

Output Measure ◽

Central Regions ◽

The Business Cycle ◽

National Business ◽

Cycle Indicator

This paper aims to document expansions and recessions characteristics for 17 states of Mexico over the period 1993-2006 by using a classical business cycle approach. We use the manufacturing production index for each state as the business cycle indicator since it is the only output measure available on a monthly basis. According to this approach, we analyse asymmetries in mean, volatility and duration as well as synchronisation over the business cycle regimes (expansions and recessions) for each case. Our results indicate that recessions are less persistent and more volatile (in general) than expansions in most Mexican states; yet, there is no clear cut evidence on mean asymmetries. In turn, there seems to be strong links between the business cycle regimes within the Northern and Central regions of the country and between states with similar industrialisation patterns, although it is difficult to claim that a national business cycle exists.

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Credit-Market Sentiment and the Business Cycle

SSRN Electronic Journal ◽

10.2139/ssrn.2604149 ◽

2015 ◽

Author(s):

David Lopez-Salido ◽

Jeremy C. Stein ◽

Egon Zakrajsek

Keyword(s):

Business Cycle ◽

Credit Market ◽

Market Sentiment ◽

The Business Cycle

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Does the Euro affect the dynamic relation between stock market liquidity and the business cycle?

Emerging Markets Review ◽

10.1016/j.ememar.2015.07.001 ◽

2015 ◽

Vol 25 ◽

pp. 125-153 ◽

Cited By ~ 7

Author(s):

K. Smimou ◽

W. Khallouli

Keyword(s):

Stock Market ◽

Business Cycle ◽

Market Liquidity ◽

Dynamic Relation ◽

Stock Market Liquidity ◽

The Business Cycle

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Credit-Market Sentiment and the Business Cycle

10.3386/w21879 ◽

2016 ◽

Cited By ~ 23

Author(s):

David López-Salido ◽

Jeremy Stein ◽

Egon Zakrajšek

Keyword(s):

Business Cycle ◽

Credit Market ◽

Market Sentiment ◽

The Business Cycle

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Collateral Shocks

American Economic Journal Macroeconomics ◽

10.1257/mac.20190223 ◽

2022 ◽

Vol 14 (1) ◽

pp. 83-103

Author(s):

Yvan Becard ◽

David Gauthier

Keyword(s):

Business Cycle ◽

Financial Sector ◽

Macroeconomic Model ◽

Market Sentiment ◽

Lending Standards ◽

Joint Dynamics ◽

The Business Cycle

We estimate a macroeconomic model on US data where banks lend to households and businesses and simultaneously adjust lending requirements on the two types of loans. We find that the collateral shock, a change in the ability of the financial sector to redeploy collateral, is the most important force driving the business cycle. Hit by this unique disturbance, our model quantitatively replicates the joint dynamics of output, consumption, investment, employment, and both household and business credit quantities and spreads. The estimated collateral shock generates accurate movements in lending standards and tracks measures of market sentiment. (JEL E21, E23, E24, E32, E44, G21)

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Interbank financing and business cycle in Europe

Journal of Economic Studies ◽

10.1108/jes-08-2016-0148 ◽

2019 ◽

Vol 46 (6) ◽

pp. 1280-1291 ◽

Cited By ~ 1

Author(s):

Ly Kim Cuong ◽

Vo Xuan Vinh

Keyword(s):

Business Cycle ◽

Banking Sector ◽

Financial Structure ◽

Policy Makers ◽

Content Type ◽

Level Data ◽

The Business Cycle ◽

The Stability ◽

Liquidity Shock

Purpose The knowledge of the link between interbank financing and business cycle fluctuations is important in assessing the stability and soundness of the banking sector. The purpose of this paper is to investigate the simultaneous relationship between interbank financing and the business cycle with respect to the financial structure of the bank-based and market-based systems in European countries by using bank-level data from 2007 to 2011. Design/methodology/approach The study employs an innovative instrumenting technique with an instrument of the financial structure to address the simultaneous determination of interbank financing and the business cycle. Findings The results suggest that banks establish pro-cyclical interbank borrowing by increasing their interbank position during booms and reducing it during downturns. Bank-based system performs better in redistributing the liquidity in the economy than the market-based system when there are imperfectly correlated liquidity shocks across regions during the 2007–2009 financial crisis. Practical implications The improvement of banks’ liquidity risk management should be aligned with a specific financial system. The macro-prudential supervisor should require banks in the market-based system to disclose their interbank position on the extent of risk exposure during the liquidity shock period to stabilize the EU banking industry. Originality/value This study is the first to provide policy makers with some novel empirical results concerning the linkage among bank liquidity, the macroeconomic condition and financial structure.

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