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Understanding global liquidity

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  • Eickmeier, Sandra
  • Gambacorta, Leonardo
  • Hofmann, Boris

Abstract

We explore the concept of global liquidity based on a factor model estimated using a large set of financial and macroeconomic variables from 24 advanced and emerging market economies. We measure global liquidity conditions based on the common global factors in the dynamics of liquidity indicators. By imposing theoretically motivated sign restrictions on factor loadings, we achieve a structural identification of the factors. The results suggest that global liquidity conditions are largely driven by three common factors and can therefore not be summarised by a single indicator. These three factors can be identified as global monetary policy, global credit supply and global credit demand. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 03/2013.

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Date of creation: 2013
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Handle: RePEc:zbw:bubdps:032013

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Keywords: global liquidity; monetary policy; credit supply; credit demand; international business cycles; factor model; sign restrictions;

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Cited by:
  1. Rossi, José Luiz Júnior, 2013. "Liquidity and Exchange Rates," Insper Working Papers wpe_325, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  2. Rossi, José Luiz Júnior, 2014. "The Usefulness of Financial Variables in Predicting Exchange Rate Movements," Insper Working Papers wpe_332, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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