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What is global excess liquidity, and does it matter?

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Author Info
Rasmus Rüffer () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Livio Stracca () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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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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Paper provided by European Central Bank in its series Working Paper Series with number 696.

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Length: 50 pages
Date of creation: Nov 2006
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Handle: RePEc:ecb:ecbwps:20060696

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

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  2. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August. [Downloadable!] (restricted)
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  4. Michael Ehrmann & Marcel Fratzscher, 2006. "Global financial transmission of monetary policy shocks," Working Paper Series 616, European Central Bank. [Downloadable!]
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  5. João Sousa & Andrea Zaghini, 2004. "Monetary policy shocks in the euro area and global liquidity spillovers," Working Paper Series 309, European Central Bank. [Downloadable!]
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  6. Joao Miguel Sousa & Andrea Zaghini, 2006. "Global Monetary Policy Shocks in the G5: A SVAR Approach," CFS Working Paper Series 2006/30, Center for Financial Studies. [Downloadable!]
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  7. Charles Frederick Kramer & Klaas Baks, 1999. "Global Liquidity and Asset Prices: Measurement, Implications, and Spillovers," IMF Working Papers 99/168, International Monetary Fund.
  8. Matteo Ciccarelli & Benoît Mojon, 2005. "Global inflation," Working Paper Series 537, European Central Bank. [Downloadable!]
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  9. Nelson, Edward, 2003. "The Future of Monetary Aggregates in Monetary Policy Analysis," CEPR Discussion Papers 3897, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February. [Downloadable!] (restricted)
  11. Jacques Miniane & John H. Rogers, 2003. "Capital controls and the international transmission of U.S. money shocks," International Finance Discussion Papers 778, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York. [Downloadable!]
  13. Monfort, Alain & Renne, Jean-Paul & Rüffer, Rasmus & Vitale, Giovanni, 2003. "Is Economic Activity in the G7 Synchronized? Common Shocks versus Spillover Effects," CEPR Discussion Papers 4119, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Fabio Canova, 2005. "The transmission of US shocks to Latin America," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 229-251. [Downloadable!]
  16. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper 98-12, Federal Reserve Bank of Atlanta. [Downloadable!]
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  17. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements. [Downloadable!]
  18. He, Zonglu & Maekawa, Koichi, 2001. "On spurious Granger causality," Economics Letters, Elsevier, vol. 73(3), pages 307-313, December. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. Holman, Jill Ann & Neumann, Rebecca M, 2002. "Evidence on the Cross-Country Transmission of Monetary Shocks," Applied Economics, Taylor and Francis Journals, vol. 34(15), pages 1837-57, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Working Papers 13329, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Ansgar Belke & Walter Orth, 2007. "Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries," Ruhr Economic Papers 0037, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  3. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Chapters, in: International Dimensions of Monetary Policy National Bureau of Economic Research, Inc. [Downloadable!]
  4. Brenda González-Hermosillo, 2008. "Investors’ Risk Appetite and Global Financial Market Conditions," IMF Working Papers 08/85, International Monetary Fund. [Downloadable!]
  5. Ramón Adalid & Carsten Detken, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series 732, European Central Bank. [Downloadable!]
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