Global Liquidity: Availability of Funds for Safe and Risky Assets
IMF Working Papers, June 1, 2011
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Bibliographic details
- Authors: Akito Matsumoto
- Published: June 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455264452.001
Overview and research question
- Title: Global Liquidity: Availability of Funds for Safe and Risky Assets
- Author: Akito Matsumoto
- Date: June 1, 2011
- Publication: IMF Working Papers, Working Paper No. 2011/136
- Pages: 36
- Volume: 2011
- Issue: 136
- DOI: https://doi.org/10.5089/9781455264452.001
- Stock No: WPIEA2011136
- ISBN: 9781455264452
- ISSN: 1018-5941
- Core question: What is global liquidity and how does it affect an economy?
Conceptual framing
- Two perspectives on global liquidity:
- Global liquidity as availability of funds in safe asset markets.
- Global liquidity as availability of funds in risky asset markets.
- Rationale for the distinction:
- Market segmentation between safe and risky asset markets.
- Market segmentation motivated the use of unconventional monetary policy to restore a function of risky asset markets.
- Analytical setup:
- Construct proxy variables for the two aspects of global liquidity.
- Assess how these proxies affect an emerging economy whose interest rate is affected by a world risk-free rate and a risk premium.
Data and empirical scope
- Empirical sample: data from four major Latin American countries (countries not named in the overview).
- Methods: proxy-variable construction and assessment of effects on an emerging economy model influenced by world risk-free rate and a risk premium.
Key findings
- The two aspects of global liquidity (safe-asset funding and risky-asset funding) have similar effects on economic performance in emerging market economies.
- Exception: the two aspects differ in their effect on inflation.
Policy-relevant observations
- Market segmentation can justify unconventional monetary policy aimed at risky asset markets to restore market functioning.
- Understanding separate channels of global liquidity (safe vs risky) is important for assessing impacts on emerging market macroeconomic outcomes, including inflation dynamics.
Source: IMF Working Papers — Global Liquidity: Availability of Funds for Safe and Risky Assets, Akito Matsumoto, June 1, 2011.