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Global Liquidity, Risk Premiums and Growth Opportunities

Author/Editor: De Nicoló, Gianni | Ivaschenko, Iryna V.
Authorized for Distribution: March 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,025KB)
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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: This paper constructs new indicators of liquidity for equity, bond and money markets in major advanced and emerging market countries, documents their evolution and comovements, and assesses the extent to which such measures are determinants of selected spreads and proxy measures of countries' growth opportunities. Three main results obtain. First, there is evidence of an historical increase in market liquidity since the early 1990s, in part as a result of advances in international financial integration, but markets have been increasingly exposed to global systemic liquidity shocks. Second, liquidity indicators appear to be important determinants of bond spreads in advanced economies and EMBI spreads in emerging markets. Third, improvements in market liquidity have significant real effects, as liquidity indicators have a significant positive impact on proxy measures of countries' growth opportunities.
 
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Series: Working Paper No. 09/52
Subject(s): International liquidity | Stock markets | Bond markets | Risk premium | Developed countries | Emerging markets | Economic integration | Economic growth | Economic models
Author's keyword(s): Liquidity | Risk Premiums | Growth Opportunities
 
English  
    Published:   March 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009052   Pages:   33
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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