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Exploring the Dynamics of Global Liquidity

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Author Info

  • Sally F. (Sally Fangnan) Chen
  • Philip Liu
  • Andrea M. Maechler
  • Chris Marsh
  • Sergejs Saksonovs
  • Hyun Song Shin

Abstract

This paper explores the concept of global liquidity, its measurement and macro-financial importance. We construct two sets of indicators for global liquidity: a quantity series distinguishing between core and noncore liabilities of financial intermediatires and a corresponding price series. Using price and quantity indicators simultaneously, it is possible to distinguish between shocks to the supply and demand for global liquidity, and isolate their impact on the economy. Our results confirm that global liquidity conditions matter for economic and financial stability, and points to indicators whose regular monitoring could be valuable to policymakers.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/246.

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Length: 47
Date of creation: 11 Oct 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/246

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Related research

Keywords: Liquidity; Demand; Supply; Monetary aggregates; International monetary system; core and noncore financial liabilities; shadow banking; growth; global liquidity; external liabilities; global financial crisis; global financial stability; central bank; financial markets; financial intermediation; capital markets; reserve bank; international financial; exchange rates; liquidity injections; liquidity variables; central banks; capital flows; international finance; international financial markets; foreign exchange;

References

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  1. Domenico Giannone & Lucrezia Reichlin & David Small, 2005. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-42, Board of Governors of the Federal Reserve System (U.S.).
  2. Eickmeier, Sandra & Ng, Tim, 2011. "How do credit supply shocks propagate internationally? A GVAR approach," Discussion Paper Series 1: Economic Studies 2011,27, Deutsche Bundesbank, Research Centre.
  3. Jean Tirole, 2010. "Illiquidity and all its friends," BIS Working Papers 303, Bank for International Settlements.
  4. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Bank of England working papers, Bank of England 272, Bank of England.
  5. Alessi, Lucia & Detken, Carsten, 2011. "Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity," European Journal of Political Economy, Elsevier, Elsevier, vol. 27(3), pages 520-533, September.
  6. Antonello D'Agostino & Paolo Surico, 2009. "Does Global Liquidity Help to Forecast U.S. Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(2-3), pages 479-489, 03.
  7. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5994, C.E.P.R. Discussion Papers.
  8. Gerdesmeier, Dieter & Roffia, Barbara & Reimers, Hans-Eggert, 2009. "Asset price misalignments and the role of money and credit," Working Paper Series, European Central Bank 1068, European Central Bank.
  9. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(2), pages 381-419, March.
  10. Ren�e Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 49(4), pages 938-60, December.
  11. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(6), pages 1131-1159, September.
  12. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
  13. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
  14. Matheson, Troy D., 2012. "Financial conditions indexes for the United States and euro area," Economics Letters, Elsevier, Elsevier, vol. 115(3), pages 441-446.
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Citations

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Cited by:
  1. Sandra Eickmeier & Leonardo Gambacorta & Boris Hofmann, 2013. "Understanding Global Liquidity," BIS Working Papers 402, Bank for International Settlements.
  2. Philip Lane, 2013. "International Capital Flows and Domestic Financial Conditions: Lessons for Emerging Asia," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp438, IIIS.
  3. Pietro Cova & Patrizio Pagano & Massimiliano Pisani, 2014. "Foreign exchange reserve diversification and the "exorbitant privilege"," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 964, Bank of Italy, Economic Research and International Relations Area.
  4. Vivek Arora & Karl Habermeier & Jonathan D. Ostry & Rhoda Weeks-Brown, 2013. "La liberalización y el manejo de los flujos de capital: una visión institucional," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, Universidad Externado de Colombia - Facultad de Economía, vol. 15(28), pages 205-255, January-J.
  5. Marie-Louise Djigbenou, 2014. "Determinants of Global Liquidity Dynamics:a FAVAR approach," Working Papers, HAL hal-00956314, HAL.

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