Can Global Liquidity Forecast Asset Prices?
IMF Working Papers, August 1, 2010
Source details
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- Can Global Liquidity Forecast Asset Prices?
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Bibliographic details
- Authors: Reginald Darius
- Published: August 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455205264.001
Summary and research question
- Investigates the extent to which the rise in asset prices leading up to the global financial crisis was influenced by developments in global liquidity.
- Focuses on house prices and equity prices, and examines spillovers from global liquidity to domestic variables.
- Tests the hypothesis that increased international liquidity weakened the potency of domestic monetary policy.
Key findings
- Global liquidity had a significant impact on the buildup in house prices.
- The impact of global liquidity on equity prices was limited.
- Contrary to common perception, the impact of global liquidity declined during the period of the Great Moderation.
- Domestic factors generally played a more significant role in house price appreciation relative to global factors.
- These findings contradict the hypothesis of weakened potency of domestic monetary policy in the presence of increased international liquidity.
Subject areas and keywords
- Subject: Asset and liability management, Asset liquidity, Asset prices, Housing prices, International liquidity, Liquidity indicators, Liquidity management, Prices
- Keywords: Asset liquidity, asset price, Asset prices, Global, Global Liquidity, Housing prices, International liquidity, Liquidity management, liquidity shock, liquidity surge, market liquidity, price level, Spillover Analysis, WP