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Global Liquidity and Drivers of Cross-Border Bank Flows

Author

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  • Cerutti, Eugenio
  • Claessens, Stijn
  • Ratnovski, Lev

Abstract

This paper studies the determinants of global liquidity using data on cross-border bank flows, with a longer time series and broader country sample than previous studies. We define global liquidity as non-price determinants of cross-border credit supply, consistent with its meaning as the “ease of financing” in international financial markets. We find that global liquidity is driven primarily by uncertainty (VIX), US monetary policy (term premia), and UK and Euro Area bank conditions (proxied by leverage and TED spreads). This expands on previous studies by highlighting non-US drivers of global liquidity, and is consistent with the dominant role of European banks in cross-border lending. We also show that borrowing countries can limit their exposures to global liquidity fluctuations through adapting their macro frameworks, capital flow management tools, and bank regulation.

Suggested Citation

  • Cerutti, Eugenio & Claessens, Stijn & Ratnovski, Lev, 2014. "Global Liquidity and Drivers of Cross-Border Bank Flows," CEPR Discussion Papers 10314, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10314
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital Flows; Global liquidity; International Banking;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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