"Global liquidity as a leading indicator of financial crises" by Michael Howell & Hari Krishnan

Past Event

20 June 2014, 4:30pm - 6:00pm

INET Oxford Lecture Theatre
Eagle House, Walton Well Road, Oxford, OX2 6ED

This seminar is hosted by The Institute for New Economic Thinking at the Oxford Martin School

Speakers: Michael Howell & Hari Krishnan, Liquidity.com

Abstract: Every market crisis is different and crises are notoriously difficult to forecast. However, severe drops in risk assets have generally been preceded by a build up of excess leverage, or credit, in the system. The greater the leverage, the more sensitive investors are to random asset price shocks, as they are forced to liquidate positions more quickly. In this lecture, we describe a methodology for tracking the amount of “liquidity” in the financial system. Our measures of liquidity incorporate credit growth, leverage, available funding, cross-border flows and the magnitude of Central Bank interventions. We have created indices that track liquidity over time, over 30 years, covering 80 countries. The liquidity indices provide reasonable forecasts of yield curve and asset class moves and in principle can be incorporated into a crisis prediction model.