Can Global Liquidity Forecast Asset Prices?

August 1, 2010

Preview Citation

Format: Chicago

Reginald Darius. Can Global Liquidity Forecast Asset Prices?, (USA: International Monetary Fund, 2010) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

During the period leading up to the global financial crisis many asset classes registered rapid price increases. This coincided with a significant rise in global liquidity. This paper attempts to determine the extent to which the rise in asset prices was influenced by developments in global liquidity. We confirm that global liquidity had a significant impact on the buildup in house prices; however, the impact on equity prices was limited. In contrast to common perception, we find that the impact of global liquidity declined during the period of the Great Moderation. The paper also examines spillovers from global liquidity to domestic variables and concludes that domestic factors generally played a more significant role in house price appreciation relative to global factors. This contradicts the hypothesis of weakened potency of domestic monetary policy in the presence of increased international liquidity.

Subject: Asset and liability management, Asset liquidity, Asset prices, Housing prices, International liquidity, Liquidity indicators, Liquidity management, Prices

Keywords: Asset liquidity, Asset price, Asset prices, Global, Global Liquidity, Housing prices, International liquidity, Liquidity management, Liquidity shock, Liquidity surge, Market liquidity, Price level, Spillover Analysis, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/196
Stock No:

WPIEA2010196
ISBN:

9781455205264
ISSN:

1018-5941

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