Does Global Liquidity Matter for Monetary Policy in the Euro Area?
January 1, 2009
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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.
Subject: Asset and liability management, Excess liquidity, Inflation, International liquidity, Liquidity, Liquidity indicators, Liquidity management, Prices
Keywords: area inflation, EA liquidity, euro area, excess liquidity, Excess liquidity, forecasting accuracy, Global, Global excess liquidity, inflation, interest rate, interest rate channel, International liquidity, JP liquidity, Liquidity, liquidity arbitrage, liquidity condition, liquidity development, Liquidity management, monetary policy, WP
Pages:
26
Volume:
2009
DOI:
Issue:
017
Series:
Working Paper No. 2009/017
Stock No:
WPIEA2009017
ISBN:
9781451871647
ISSN:
1018-5941
