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

By Woon Gyu Choi, Taesu Kang, Geun-Young Kim, Byongju Lee

October 30, 2017

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Woon Gyu Choi, Taesu Kang, Geun-Young Kim, and Byongju Lee. Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses, (USA: International Monetary Fund, 2017) accessed September 18, 2024

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.

Subject: Asset and liability management, Asset prices, Central bank policy rate, Central banks, Financial services, International liquidity, International reserves, Liquidity, Prices

Keywords: Asset prices, Central bank policy rate, GL expansion, GL factor, GL impact, GL metrics, GL momenta, GL shock, Global, Global Liquidity, Inflation targeting, International liquidity, International reserves, Liquidity, Panel Factor-Augmented VAR, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/222
Stock No:

WPIEA2017222
ISBN:

9781484325216
ISSN:

1018-5941

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