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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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  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.
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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. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers. [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)
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  2. Brenda González-Hermosillo, 2008. "Investors’ Risk Appetite and Global Financial Market Conditions," IMF Working Papers 08/85, International Monetary Fund. [Downloadable!]
  3. 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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