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Global excess liquidity and asset prices in emerging countries: a pvar approach

  • Sophie Brana

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)

  • Marie-Louise Djibenou

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)

  • Stéphanie Prat

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)

The overly accommodating monetary policy is often accused of creating surplus liquidity and bubbles on the asset markets. In particular, it could have contributed to strong capital inflows in emerging countries, which may have had a significant impact on financial stability in these countries, affecting domestic financing conditions and creating a risk of upward pressures on asset prices. We focus in this paper on the impact of global excess liquidity on good and asset prices for a set of emerging market countries by estimating a panel VAR model. We define first global liquidity and highlight situations of excess liquidity. We then find that excess liquidity at the global level has spillover effects on output and price level in emerging countries. The impact on real estate and commodity prices in emerging countries is less clear.

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Paper provided by HAL in its series Working Papers with number hal-00740102.

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Date of creation: 01 Mar 2012
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Handle: RePEc:hal:wpaper:hal-00740102
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  1. 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.).
  2. Belke, Ansgar & Orth, Walter & Setzer, Ralph, 2010. "Liquidity and the dynamic pattern of asset price adjustment: A global view," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1933-1945, August.
  3. 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.
  4. Gouteron, S. & Szpiro, D., 2005. "Excès de liquidité monétaire et prix des actifs," Working papers 131, Banque de France.
  5. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  6. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  7. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
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