Global liquidity as an early warning indicator of asset price booms: G5 versus broader measures
We test the performance of various measures of global liquidity as early warning indicators of booms in house and equity prices in 20 OECD countries between 1970 and 2010. We use a panel probit approach to test the relative performance of global liquidity measures based on two aggregation schemes: the traditional measures, based on G5 data, and broader measures, based on data for up to 26 countries/currency areas. Our results show that, in the last decade, global liquidity measures outperformed domestic measures as early warning indicators. Between the two global liquidity measures, G5 aggregates often outperformed broader global liquidity measures. The search for the best early warning indicator showed that the G5 real narrow money gap performed best for booms in house prices, while the global real private credit growth gap performed best for booms in equity prices, either when aggregated over G5 or over a broader sample of countries. Nevertheless, given the rising importance of the emerging market economies and a declining share of G5 in global liquidity, the current superior performance of G5 measures may not warrant their superior performance in the future. Therefore, given the importance of global liquidity measures in warning about asset price booms, the need for constructing broader global liquidity measures is warranted.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.dnb.nl/en/
More information through EDIRC
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.:
- AfDB AfDB, 2008. "List of Working Paper Series (1 - 95)," Working Paper Series 356, African Development Bank.
- Rasmus Ruffer & Livio Stracca, 2007.
"What is global excess liquidity, and does it matter?,"
Money Macro and Finance (MMF) Research Group Conference 2006
120, Money Macro and Finance Research Group.
- Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 0696, European Central Bank.
- Reinhart, Carmen & Kaminsky, Graciela, 1999.
"The twin crises: The causes of banking and balance of payments problems,"
14081, University Library of Munich, Germany.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:377. See general 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: (Rob Vet)
If references are entirely missing, you can add them using this form.