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

  • Sophie Brana

    ()

  • Marie-Louise Djigbenou

    ()

  • Stéphanie Prat

    ()

    (Larefi, Université Bordeaux IV)

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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File URL: http://lare-efi.u-bordeaux4.fr/IMG/pdf/CR12-03.pdf
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Paper provided by Larefi, Université Bordeaux 4 in its series Larefi Working Papers with number 1203.

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Length: 30 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:laf:wpaper:cr1203
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  1. 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.
  2. Sousa, João & Zaghini, Andrea, 2004. "Monetary policy shocks in the euro area and global liquidity spillovers," Working Paper Series 0309, European Central Bank.
  3. Ansgar Belke & Walter Orth & Ralph Setzer, 2009. "Liquidity and the Dynamic Pattern of Asset Price Adjustment: A Global View," Discussion Papers of DIW Berlin 933, DIW Berlin, German Institute for Economic Research.
  4. 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.
  5. Gouteron, S. & Szpiro, D., 2005. "Excès de liquidité monétaire et prix des actifs," Working papers 131, Banque de France.
  6. 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.
  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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