Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses
IMF Working Papers, October 30, 2017
Source details
- Canonical URL
- Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses
Other formats
Bibliographic details
- Authors: Woon Gyu Choi, Taesu Kang, Geun-Young Kim, Byongju Lee
- Published: October 30, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484325216.001
Methodology and definitions
- Global liquidity (GL) momenta are distilled from the macro-financial data of advanced economies using a factor model with sign restrictions.
- GL is decomposed into three factors: policy-driven, market-driven, and risk averseness factors.
- Responses of emerging market economies (EMEs) to GL shocks are investigated using a panel factor-augmented VAR.
Core findings
- A policy-driven liquidity increase:
- Boosts growth in EMEs.
- Elevates stock prices in EMEs.
- Raises currency values in EMEs.
- A rise in risk averseness:
- Has effects opposite to a policy-driven liquidity increase (i.e., depresses growth, stock prices, and currency values).
- A market-driven GL expansion:
- Boosts stock markets in EMEs.
- Lowers funding costs.
- Promotes competitiveness and the current account.
Comparative finding on policy regimes
- Inflation targeting EMEs fare better than EMEs under alternative regimes with respect to macrofinancial volatility.
Subject coverage and keywords
- Subjects: 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.
Content in this bundle
- wp17222 - References