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What is global excess liquidity, and does it matter?

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  • Rüffer, Rasmus
  • Stracca, Livio

Abstract

This paper endeavours to provide a comprehensive analysis of the nature and the possible importance of “global excess liquidity”, a concept which has attracted considerable attention in recent years. The contribution of this paper is threefold. First, we present some conceptual discussion on the meaning of excess liquidity in advanced countries with developed financial markets. Second, we report some descriptive analysis on the degree of co-movement of several possible measures of excess liquidity and spill-overs between them for a relatively large sample of industrialised and developing countries. Third, we estimate a VAR model for an aggregate of the major industrialised countries and analyse the transmission of shocks to global excess liquidity to the global economy, including possible cross-border spill-over effects to a number of domestic variables in the world’s three largest economies (the US, the euro area and Japan). JEL Classification: E52, F42

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0696.

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Date of creation: Nov 2006
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Handle: RePEc:ecb:ecbwps:20060696

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Keywords: Global excess liquidity; international economics; monetary policy; open economy;

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  1. Sousa, Joao Miguel & Zaghini, Andrea, 2006. "Global monetary policy shocks in the G5: A SVAR approach," CFS Working Paper Series 2006/30, Center for Financial Studies (CFS).
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  18. Kim, Soyoung, 2001. "International transmission of U.S. monetary policy shocks: Evidence from VAR's," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 339-372, October.
  19. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
  20. Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York.
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