What is global excess liquidity, and does it matter?
AbstractThis paper endeavours to provide a comprehensive analysis of the nature and the possible importance of â€œglobal excess liquidityâ€, 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 countries with developed financial markets, where the monetary base plays only a relatively minor quantitative role. Moreover, we analyse the theoretical channels through which shocks to excess liquidity may be transmitted across borders. The co-movement between several measures of excess liquidity across a relatively large number of countries is significant, but the evidence of cross-country spill-over of excess liquidity on excess liquidity and nominal spending abroad is not very strong. Last, we estimate an SVAR model for an aggregate of the major industrialised countries and analyse the transmission of shocks to global excess liquidity to a number of domestic variables in the worldâ€™s two largest economies (the US and the euro area). Our overall conclusion is that global excess liquidity appears to be a useful measure of the monetary policy stance at the level of the world economy. Moreover, there is some evidence that global excess liquidity shocks have some spill-over on output, the price level and asset prices in the euro area, while the US appears to be more insulated from global shocks
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 120.
Date of creation: 02 Feb 2007
Date of revision:
Contact details of provider:
Web page: http://www.essex.ac.uk/afm/mmf/index.html
Global excess liquidity; monetary aggregates; international transmission of shocks; international economics.;
Other versions of this item:
- Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 0696, European Central Bank.
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-09 (All new papers)
- NEP-CBA-2007-04-09 (Central Banking)
- NEP-MAC-2007-04-09 (Macroeconomics)
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.:
- Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York.
- Canova, Fabio, 2003.
"The Transmission of US Shocks to Latin America,"
CEPR Discussion Papers
3963, C.E.P.R. Discussion Papers.
- Michael Ehrmann & Marcel Fratzscher, 2009.
"Global Financial Transmission of Monetary Policy Shocks,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 71(6), pages 739-759, December.
- Ehrmann, Michael & Fratzscher, Marcel, 2006. "Global financial transmission of monetary policy shocks," Working Paper Series 0616, European Central Bank.
- Michael Ehrmann & Marcel Fratzscher, 2006. "Global Financial Transmission of Monetary Policy Shocks," CESifo Working Paper Series 1710, CESifo Group Munich.
- Maurice Obstfeld & Kenneth Rogoff, 1994.
"Exchange Rate Dynamics Redux,"
NBER Working Papers
4693, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
- Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
- Carlos Borondo, 2000. "International Transmission Of Monetary Shocks With Interest Rate Rule," Working Papers 00-04, Asociación Española de Economía y Finanzas Internacionales.
- He, Zonglu & Maekawa, Koichi, 2001. "On spurious Granger causality," Economics Letters, Elsevier, vol. 73(3), pages 307-313, December.
- Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
- Ciccarelli, Matteo & Mojon, Benoît, 2005.
Working Paper Series
0537, European Central Bank.
- Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago.
- Matteo Ciccarelli & Benoît Mojon, 2005. "Global Inflation," Working Papers Central Bank of Chile 357, Central Bank of Chile.
- Matteo Ciccarelli & Benoît Mojon, 2007. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy.
- Sousa, João & Zaghini, Andrea, 2004.
"Monetary policy shocks in the euro area and global liquidity spillovers,"
Working Paper Series
0309, European Central Bank.
- Joao Sousa & Andrea Zaghini, 2008. "Monetary policy shocks in the euro area and global liquidity spillovers," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 205-218.
- Joao Sousa & Andrea Zaghini, 2007. "Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers," Temi di discussione (Economic working papers) 629, Bank of Italy, Economic Research and International Relations Area.
- 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).
- Sousa, Joao Miguel & Zaghini, Andrea, 2007. "Global monetary policy shocks in the G5: A SVAR approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(5), pages 403-419, December.
- Joao Miguel Sousa & Andrea Zaghini, 2007. "Global Monetary Policy Shocks in the G5: a SVAR Approach," CEIS Research Paper 89, Tor Vergata University, CEIS.
- Jill Ann Holman & Rebecca Neumann, 2002. "Evidence on the cross-country transmission of monetary shocks," Applied Economics, Taylor & Francis Journals, vol. 34(15), pages 1837-1857.
- Christopher A. Sims & Tao A. Zha, 1998.
"Does monetary policy generate recessions?,"
98-12, Federal Reserve Bank of Atlanta.
- Lane, Philip R., 2001.
"The new open economy macroeconomics: a survey,"
Journal of International Economics,
Elsevier, vol. 54(2), pages 235-266, August.
- Nelson, Edward, 2003.
"The Future of Monetary Aggregates in Monetary Policy Analysis,"
CEPR Discussion Papers
3897, C.E.P.R. Discussion Papers.
- Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
- 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.
- Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
- Frederic S. Mishkin, 2007.
"Is Financial Globalization Beneficial?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(2-3), pages 259-294, 03.
- Caroline Schmidt, 2006.
"International transmission effects of monetary policy shocks: can asymmetric price setting explain the stylized facts?,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 11(3), pages 205-218.
- Caroline Schmidt, 2005. "International Transmission Effects of Monetary Policy Shocks: Can Asymmetric Price Setting Explain the Stylized Facts?," KOF Working papers 05-102, KOF Swiss Economic Institute, ETH Zurich.
- Donald H. Dutkowsky & Barry Z. Cynamon & Barry E. Jones, 2006. "U.S. Narrow Money for the Twenty-First Century," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 142-152, January.
- Klaas Baks & Charles Frederick Kramer, 1999. "Global Liquidity and Asset Prices," IMF Working Papers 99/168, International Monetary Fund.
- 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.
- Jacques Miniane & John H. Rogers, 2007.
"Capital Controls and the International Transmission of U.S. Money Shocks,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(5), pages 1003-1035, 08.
- 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.).
- 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.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.