Does Global Liquidity Matter for Monetary Policy in the Euro Area?

Author/Editor:

Helge Berger ; Thomas Harjes

Publication Date:

January 1, 2009

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:

Global excess liquidity is sometimes believed to limit sovereign monetary policy even in large economies, including the euro area. There is much discussion about what constitutes global excess liquidity and our approach adjusts liquidity for longer-term interest rate and output effects. We find that especially excess liquidity in the U.S. leads developments in euro area liquidity. U.S. excess liquidity also enters consistently positive as a determinant of euro area inflation. There is some evidence that this result may be related to a weakening of the effectiveness of monetary policy in the euro area during times of excessive U.S. liquidity.

Series:

Working Paper No. 09/17

Subject:

English

Publication Date:

January 1, 2009

ISBN/ISSN:

9781451871647/1018-5941

Stock No:

WPIEA2009017

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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