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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. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
  2. 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.
  3. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, American Economic Association, vol. 99(3), pages 1053-69, June.
  4. Matheson, Troy D., 2012. "Financial conditions indexes for the United States and euro area," Economics Letters, Elsevier, Elsevier, vol. 115(3), pages 441-446.
  5. Jean Tirole, 2010. "Illiquidity and all its friends," BIS Working Papers 303, Bank for International Settlements.
  6. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(4), pages 665-676, May.
  7. D'Agostino, Antonello & Surico, Paolo, 2007. "Does global liquidity help to forecast US inflation?," Research Technical Papers 10/RT/07, Central Bank of Ireland.
  8. 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.
  9. Dieter Gerdesmeier & Hans‐Eggert Reimers & Barbara Roffia, 2010. "Asset Price Misalignments and the Role of Money and Credit," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 13(3), pages 377-407, Winter.
  10. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2137, C.E.P.R. Discussion Papers.
  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. 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.
  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. 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.
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Citations

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Cited by:
  1. Eickmeier, Sandra & Gambacorta, Leonardo & Hofmann, Boris, 2014. "Understanding global liquidity," European Economic Review, Elsevier, Elsevier, vol. 68(C), pages 1-18.
  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. Marie-Louise Djigbenou, 2014. "Determinants of Global Liquidity Dynamics:a FAVAR approach," Working Papers, HAL hal-00956314, HAL.
  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. 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.

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