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

Author/Editor: Berger, Helge ; Harjes, Thomas
Publication Date: January 01, 2009
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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(s): Excess liquidity | Europe | Euro Area | United States | Japan | Monetary policy | Interest rates | Inflation

Author's Keyword(s): Global excess liquidity | euro area | inflation | monetary policy | interest rate channel | forecasting accuracy
Publication Date: January 01, 2009
Format: Paper
Stock No: WPIEA2009017 Pages: 24
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