Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses

Author/Editor:

Woon Gyu Choi ; Taesu Kang ; Geun-Young Kim ; Byongju Lee

Publication Date:

October 30, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper distills and identifies global liquidity (GL) momenta from the macro-financial data of advanced economies through a factor model with sign restrictions as policy-driven, market-driven, and risk averseness factors. Using a panel factor-augmented VAR, we investigate responses of emerging market economies (EMEs) to GL shocks. A policy-driven liquidity increase boosts growth in EMEs, elevating stock prices and currency values, while a risk averseness rise has an opposite effect. A market-driven GL expansion boosts stock markets and lowers funding costs, promoting competitiveness and current account. Inflation targeting EMEs fare better than EMEs under alternative regimes with respect to macrofinancial volatility.

Series:

Working Paper No. 17/222

Subject:

English

Publication Date:

October 30, 2017

ISBN/ISSN:

9781484325216/1018-5941

Stock No:

WPIEA2017222

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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