Can policy improve liquidity during a financial crisis?
Can policy improve liquidity during a financial crisis?

Summary/Abstract: This paper empirically examines the development and determinants of the liquidity position in the financial sector during the recent financial crisis in the Baltic-Scandinavian egion. We look at fiscal and monetary policy implications of liquidity problems arising in he crisis. The results are consistent with theoretical predictions for a small open conomy with the expected sign of changes and developments in common economic indicators. hanges (and the speed of changes) in interest rates, GDP and money supply have occurred elatively rapidly, meaning that the rising area of the LM-curve has been shorter than heory would predict. Market reactions took place quickly and simultaneously – there was no ime for slow restructuring, so that liquidity needs were higher than usual.

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