Financial Market Liquidity and the Financial Crisis: An Assessment Using UK Data


  • *We thank Sir John Gieve and two anonymous referees for helpful comments.

Christopher Martin
Department of Economics
University of Bath
Bath BA2 7AY


A steady increase in financial market liquidity followed by a rapid reduction played a central role in the financial crisis that began in 2007. We present empirical evidence that the marked rise in liquidity in 2001–07 was due to large and persistent current account deficits and loose monetary policy.