O'Reilly logo

The Global Economic System: How Liquidity Shocks Affect Financial Institutions and Lead to Economic Crises by Anders L. Sjöman, Hans Gunawan, Carolyn L. Evans, George Chacko

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 6. Conclusion

In the previous chapters we described a phenomenon—liquidity risk and liquidity shocks—whose effects work primarily through financial institutions. As a result, economic contractions that occur due to liquidity crises behave differently than standard recessions.

An obvious question that comes to mind is whether there are ways to lessen the effects of liquidity shocks. If a liquidity shock occurs in the financial markets, can public policy be used to mitigate its effects on financial markets and institutions as well as shield the nonfinancial sector of the economy? In this chapter, we deal briefly with this question as we conclude the book.

6.1 A Liquidity Crisis

A liquidity shock starts when there is a drop in the fundamental ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required