Does G-4 Liquidity Spill Over?

Author/Editor:

L. Effie Psalida ; Tao Sun

Publication Date:

October 1, 2011

Electronic Access:

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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:

The resumption of strong capital flows into emerging markets in mid-2009 brought back the debate over whether pull or push factors are the main determinants. This paper, using panel specifications with alternative measures of global liquidity, asks the question whether G-4 liquidity expansion spills over to the rest of the world. The paper finds strong positive links between G-4 liquidity expansion and asset prices, such as equities, in the liquidity receiving economies, which indicates that the push factor plays an important role in asset prices. Liquidity also has a strong positive link with the accumulation of official reserves and with equity portfolio inflows in receiving economies. Moreover, the association between excess equity returns, excess credit growth, and global liquidity has implications for rising risks to financial stability in the receiving economies.

Series:

Working Paper No. 2011/237

Subject:

Asset and liability management Domestic liquidity Excess liquidity International liquidity Liquidity Monetary base Money

English

Publication Date:

October 1, 2011

ISBN/ISSN:

9781463922559/1018-5941

Stock No:

WPIEA2011237

Pages:

29

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