Does G-4 Liquidity Spill Over?
October 1, 2011
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Summary
The resumption of strong capital flows into emerging markets in mid-2009 brought back the debate over whether pull or push factors are the main determinants. This paper, using panel specifications with alternative measures of global liquidity, asks the question whether G-4 liquidity expansion spills over to the rest of the world. The paper finds strong positive links between G-4 liquidity expansion and asset prices, such as equities, in the liquidity receiving economies, which indicates that the push factor plays an important role in asset prices. Liquidity also has a strong positive link with the accumulation of official reserves and with equity portfolio inflows in receiving economies. Moreover, the association between excess equity returns, excess credit growth, and global liquidity has implications for rising risks to financial stability in the receiving economies.
Subject: Asset and liability management, Domestic liquidity, Excess liquidity, International liquidity, Liquidity, Monetary base, Money
Keywords: asset valuations, break, capital flows, Domestic liquidity, Excess liquidity, exchange rates, Global, global liquidity, Granger causality test, International liquidity, Liquidity, liquidity condition, liquidity expansion, liquidity growth, liquidity-easing measure, liquidity-receiving economy, Middle East, Monetary base, money supply, Western Hemisphere, WP
Pages:
29
Volume:
2011
DOI:
Issue:
237
Series:
Working Paper No. 2011/237
Stock No:
WPIEA2011237
ISBN:
9781463922559
ISSN:
1018-5941
