- New releases
- Statistical data
- IMF research
- How to order
- Contact us
- Useful links
Real Effects of the Subprime Mortgage Crisis : Is it a Demand or a Finance Shock?
Author/Editor: Hui Tong, Shang-Jin Wei
Release Date: © July, 2008
ISBN : 978-1-45187-044-2
Stock #: WPIEA2008186
Stock Status: On back-order
Languages and formats available
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.
People who purchased this product also purchased
More publications in this series: Working Papers