Euro-Denominated Credit Liquidity: Tracing Cyclical Phases in Global Finance

In the past few years, set against the backdrop of pandemic mitigation efforts and the resultant inflationary spike, the macrofinancial landscape has undergone significant transformation. The tightening of monetary policy by global central banks in response to these phenomena has notably affected global financial liquidity, particularly within the realm of foreign currency lending. This article delves into the shifts in credit liquidity, centering on the Global Liquidity Index for euro-denominated loans across European Union nations over the last two decades. Through the application of the Fourier Transform, we analyse the cyclical patterns within the index and delineate the primary phases of its evolution: pre- and post- the 2008/2009 financial crisis, and the inception of a potential new liquidity phase. The analysis reveals a qualitative transformation in the index’s harmonic cycles from the initial two phases, an augmented presence of short cycles in the series dynamics, and it posits that the Third Liquidity Phase, emerging in the wake of the post-pandemic crisis, may maintain the dynamic patterns established in the preceding phase.