Search

This research investigates the spillovers of global liquidity to Asia–Pacific countries, focusing on the contradictory effects of policy-driven liquidity created by monetary stances in advanced economies and market-driven liquidity generated by the private banking sector. Our findings stand in sharp contrast to previous studies, showing that shifts in macro-financial indicators in Asia–Pacific economies are predominantly influenced by market-driven shocks rather than those of policy-driven liquidity. Specifically, liquidity shocks associated with surges in cross-border credit flows, especially those denominated in US dollars, drive up asset prices and have boosting effects on inflation and economic output. A positive shock to market liquidity also results in an appreciation pressure on domestic currencies and a short-term rise in interest rates. However, excess liquidity shocks caused by the Bank of Japan's adjustments in shadow short rates and balance sheets have a negative effect on inflation and bring about temporary depreciation pressure on Asian currencies. Surprisingly, we find that Asian responses to financial easing associated with the Fed's monetary policy change are not well-pronounced. [ABSTRACT FROM AUTHOR]

The article analyzes parameters characterizing anticrisis financing of the global financial safety net (GFSN) with an emphasis on international reserves. A new approach was used, in which the analysis was carried out through the prism of the global currency liquidity concept. The article shows the role of international currency reserves as a key element providing interconnection, on the one hand, of official and private components of global liquidity, and, on the other hand, of national and international currency systems. Facilitating the redistribution of global currency liquidity, reserves are at the same time free from the disadvantages inherent in other components of the global financial safety net. [ABSTRACT FROM AUTHOR]

We show that global liquidity contributes to household credit growth across countries. We are interested in that link as household credit growth - more so than growth in other types of credit - has contributed to financial crises. The effect of global liquidity on household credit growth is particularly strong in countries that are more closely integrated with the world economy as well as in those with a greater level of financial development and more open capital markets. These are the types of countries that were most strongly affected during the global financial crisis. We also find tentative evidence that countries with a greater presence of foreign banks and those with more concentrated banking systems experience a closer link between global liquidity and household credit. [ABSTRACT FROM AUTHOR]

Research background: Endogenous money creation is an inherent feature of today's economies and widely accepted phenomenon. As the various theories of money rely on the money quantity equation, most empirical research is heading towards the analysis of the two-way relationship between the quantity of money and nominal GDP. In today's world, with the extraordinary development of the financial sector, money is used not only for transactions in the real economy, but increasingly also for purchasing financial assets. This observation was absorbed by Werner in the quantity theory of disaggregated credit. Purpose of the article: The aim of the paper is to join the debate on endogenous character of money supply by tasting a disaggregated equation of money. It assumes that the domestic money supply is positively determined not only by growth in GDP-based transactions but also by growth in non-GDP-based transactions (financial transactions). Additionally, it is assumed that in the age of globalization it can be also positively influenced by the global liquidity. Methods: Testing of the above-mentioned hypotheses takes place with the use of panel unit roots tests, panel Granger causality test and panel estimations (OLS, models with fixed/random effects, GMM). In the study, annual data from 2002 to 2018 for OECD countries were chosen for statistical research. Findings & value added: The article confirms the hypothesis that real and financial economic activity together with global liquidity positively influence domestic credit and thus money supply. As the amount of money in an economy is driven not only by the real economy but also by the financial economy, prudential regulations that restrict leverage (and thus control the amount of credit) and limit risk-taking during price bubbles periods should be therefore considered. In the research, the reaction of domestic money supply to the changes in US money supply is positive. It confirms the importance of spill-over effect of expansionary policy in major economies to other economies. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to examine how global liquidity affects international housing prices. The data sample covers 35 economies from 2000Q1 to 2017Q4. Design/methodology/approach: The existing papers seldom investigated whether the impacts of global liquidity on housing prices display differences between advanced and developing economies. Cesa-Bianchi et al. (2015) is an exceptional study in that they focused on the impulse response of house price volatility to global liquidity shocks but did not examine the long-run equilibrium relationship. To fill the gap in the existing research, this paper used panel cointegration of Pedroni (2000, 2004) to estimate the long-run linkage between global liquidity and housing prices in both advanced and developing economies, and generalized impulse response function (GIRF) and generalized variance decomposition (GVDC) were also applied to capture the relative strengths and contribution of global liquidity shock on house price volatility. Findings: First, the global liquidity elasticity of housing prices is 0.0679 in developing economies, and 0.0454 in advanced economies, implying that the positive effect of global liquidity on housing prices is higher in developing economies. Next, the results of generalized impulse response indicate that the innovation of global liquidity can significantly and positively impact housing prices only in developing economies and the duration is two quarters. Third, in light of the long-run portions of the global liquidity shock on house price volatility in individual economies, the two highest portions are 28.51% in the USA and 20.04% in the UK, while there are low portions, less than 10%, in most of the European economies. Moreover, comparing the long-run contributions of global liquidity and other variables shock on house price volatility, the contribution of the global liquidity shock ranks the highest or second highest in 21 out of 35 economies, confirming that it played a more important role than other economic variables in explaining house price volatility for most economies. Originality/value: Compared with the related literature, the contributions of this paper are as follows. First, except for Cesa-Bianchi et al. (2015), the existing papers seldom investigated whether the impacts of global liquidity on housing prices display differences between advanced and developing economies. Hence, the study adopted a wider data sample, including 7 developing economies and 28 advanced economies, to examine the differences in the impact of global liquidity on housing prices between advanced and developing economies. Second, most of the relative literature calculated global liquidity by applying a monetary aggregate, such as M2 or M3, while Cesa-Bianchi et al. (2015) argued that global liquidity being measured by the international supply of credit is intuitively connected to housing prices. This paper follows the argument of Cesa-Bianchi et al. (2015) to use the international supply of credit as the measure of global liquidity, and both the long-run effects and the short-run relative strengths of global liquidity on housing prices are analyzed. Hence, this paper uses not only the GIRF to discuss the short-run relative strengths, as with Cesa-Bianchi et al. (2015) but also the panel cointegration of Pedroni (2000, 2004) to identify the long-run linkage between global liquidity and housing prices. Moreover, GVDC was used to estimate the contribution of a global liquidity shock on house price volatility in individual economies, which can confirm that global liquidity innovations are a very important factor in explaining house price volatility in most countries. [ABSTRACT FROM AUTHOR]

In the wake of the global liquidity squeeze which further culminated in the global financial crisis, it was considered important that the indicators relating to global liquidity should be collated and reported to international economic policy centres on a regular basis. The financial stability of the global economy should not be put at risk and there should be methods to plan ahead and take necessary steps taken towards pre-empting the occurrence of such a crisis. Exploring the diverse aspects relating to global liquidity, the Committee on the Governance of Financial System of the Bank for International Settlements submitted its Report in 2011 ( Landau Report). Despite the near universal consensus that the exposure of the developing countries to volatile capital flows would work antithetical to the interests of their growth, many of these reports of the BIS /IMF fall short of making a case for capital controls or restrictions. This article discusses the same in the light of the vulnerabilities faced by the emerging market and developing economies during the current phase of global liquidity. It emphasises on the necessity of moving forward from the current conjecture of capital flow measures of the IMF to capital controls. [ABSTRACT FROM AUTHOR]

This paper assesses the financial channel of exchange rate fluctuations for emerging countries and the link to the conventional trade channel. We analyze whether the effective exchange rate affects GDP growth, the domestic credit and the global liquidity measure as the credit in foreign currencies, and how global liquidity affects GDP growth. We make use of local projections in order to look at the shocks' transmission covering 11 emerging market countries for the period 2000Q1-2016Q3. We find that foreign denominated credit plays an important macroeconomic role, operating through various transmission channels. The direction of effects depends on country characteristics and is also related to the policy stance among countries. We find that domestic appreciations increase demand regarding foreign credit, implying positive effects on investment and GDP growth. However, this is valid only in the short-run; in the medium-long run, an increase of credit denominated in foreign currency (for instance, due to appreciation) decreases GDP. The financial channel works mostly in the short run except for Brazil, Malaysia, and Mexico, where the trade channel always dominates. Possibly there is a substitution effect between domestic and foreign credit in the case of shocks in exchange rates. [ABSTRACT FROM AUTHOR]

This paper analyzes cross border credit from a new perspective: We assess globally aggregated foreign-denominated credit to non-bank borrowers (provided by the BIS) and analyze which factors drive debt denominated in yen, euro and US dollar between 2003 and 2020. The determinants we analyze include global economic activity, global commodity prices and the evolution of assets in the FED balance sheet. We also consider assets in the ECB and the BOJ Balance in a second step. Our results show that global economic activity is the main driver of dollar debt only before the financial crisis while the Fed balance sheet drives dollar debt afterwards. We also identify a crowding-out effect of FED balance activities on debt denominated in yen and euro. On the other hand, effects of changes in the ECB and BOJ balance are qualitatively less important and more stable. [ABSTRACT FROM AUTHOR]

After the Global Financial Crisis, the usage of capital controls and macroprudential policies has returned and becomes an essential element of the policy paradigm in different countries. However, our knowledge on the effectiveness of these policy instruments is still insufficient and requires serious empirical reconsideration. The main contribution of our paper is in identifying that capital controls (on both outflows and inflows) and macroprudential instruments are effective measures in reducing the volume of cross-border banking flows in a sample of 112 countries over the period 2000–2016. Using panel regressions incorporating country fixed effects, we find that FX and/or countercyclical reserve and countercyclical capital buffer requirements, reserve requirement ratios and concentration limits are the most effective macroprudential instruments to manage countries' exposures to global liquidity fluctuations. Additionally, capital surcharges on SIFIs, limits on interbank exposures and foreign currency loans are also associated with a large reduction in flows, a finding which contributes to the literature by emphasizing the importance of macroprudential instruments aimed at financial institutions' assets or liabilities. However, leverage ratios, limits on domestic currency loans, levy/tax on financial institutions, and other borrower related instruments appear to be insignificant regulatory measures. At times of large and volatile cross-border capital flows, it is desirable to employ both capital controls and macroprudential policies, with latter tend to be generally more effective measures in reducing the volume of cross-border banking flows. The results are robust to changes in the estimation methodology and varying sets of the control variables. [ABSTRACT FROM AUTHOR]

The content of present day contradictory processes in the world economy plays an important role in choosing the strategy of social and economic development of Ukraine. The article is devoted to the estimation of the «reverse» tendencies of the global financial and institutional environment on the basis of substantiation of the actual and historical significance of global liquidity, and determination on this basis of the content of modern global financial and institutional transformations Liquidity is treated as the amount of available financing for the acquisition of both internal and cross-border assets; it describes the ability and willingness of the parties to take part in financial transactions, including mediation, and the ability of the financial markets to absorb temporary fluctuations in demand and supply of certain assets. The globality of liquidity is manifested through the interconnection of the national financial space and the cross-border movement of financial capital. The mechanisms for transmitting information on the internal conditions of the development of countries to the world financial markets and operators, which influences the rapid movement of financial flows in space and time, plays an important role. The modern development of financial technologies has given rise to such recent phenomena as liquidity and information surplus. As a result, the public need in financial intermediation institutions is gradually disappearing or regenerating. Global liquidity has national institutional sources of origin and reflects the interests of specific issuers and investors. This causes difficulty in institutional provision of international coordination on its regulatation. When circulating in the global financial and institutional space, liquidity has significant influence on supply and demand fluctuations not only in the financial markets, but in the economy as a whole. The current tendency towards decreasing the volume of the world interbank lending is not the sign of globalization, but the sign of change in the vectors of the development of globalization towards other financial mechanisms. The active introduction of new financial instruments (cryptocurrencies) into the world’s payment cycle and the policies of the leading regulators in the financial markets show that financial globalization is going on.

In this study global and national variables that affect the sovereign Credit Default Swaps (CDS) spreads for Turkey are examined. The study utilises monthly time-series data, spanning from August of 2009 to September 2018. Empirical analysis is done in two steps: In the first step, the causality relationships between related variables are investigated by the Granger causality test. In the second step, the effect of symmetric and asymmetric spillover effects on sovereign CDS spread is determined. The findings show that both national and global shocks are relevant for Turkey' sovereign CDS spreads volatility, but national variables tend to have a greater impact. Furthermore, there exist mean asymmetric effects for external fragility, domestic interest rate and the VIX variables. It is tested that sovereign CDS spreads react more sharply to domestic interest rates and VIX bad news than a positive shock of equal size. Generally, both uncertainties in global conditions and the relatively high need for external borrowing of Turkey necessitates a multi-faceted policy-making and management process. [ABSTRACT FROM AUTHOR]

Copyright of Financial & Credit Activity: Problems of Theory & Practice is the property of University of Banking of the National Bank of Ukraine and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Objectives: This article examines the impact of the global savings glut on the long-term interest rates in the United States before the Great Financial Crisis. It presents the impact mechanics of global savings on interest rates, discusses arguments supporting and contradicting the significance of this phenomenon, presents an alternative concept, namely global liquidity glut, and estimates the significance of both phenomena in shaping long-term interest rates in the USA before the crisis. Research Design & Methods: First, the impact of purchases of the US treasury bonds made by foreign investors on long-term interest rates is being assessed. Second, metrics representing global savings and liquidity gluts are being used to explain those purchases. Finally, a counterfactual exercise is used to reveal the impact that each of those factors had on the American ten-year treasury yields. Findings: The statistical analysis of both effects shows that foreign purchases of the Treasuries lowered the US longterm interest rates by up to 140 bps, with excess global savings depressing them by approximately 45 bps, and excess liquidity by another 75 bps. Implications / Recommendations: Monetary policy, as well as savings rates, might have wider than only local consequences. Excess liquidity and savings in one country can impact interest rates in other areas. Contribution / Value Added: This article presents an alternative and neglected in literature explanation for the phenomena of low long-term interest rates before the Great Financial Crisis in the USA, namely global liquidity glut that depressed interest rates more powerfully than excessive global savings, contributing to the development of the investment bubble on the housing market and, thus, the Great Financial Crisis. [ABSTRACT FROM AUTHOR]

The paper investigates the impact of global liquidity on house prices around the world using a novel proxy measured by the funding availability to global banks in the main financial centers. We find supporting evidence that global conditions from the financial centers are transmitted to local banks through bank flows. Focusing on the repo markets in the US, Europe, and the UK, over the period 2000–2014 and using a panel VAR, we find that liquidity shocks impact house prices in both emerging and advanced economies. However, countries' exposure to liquidity shocks can be mitigated by monetary policy, and by various general and house market specific macroprudential policies. We document strikingly different effectiveness of these policies in advanced and emerging markets. [ABSTRACT FROM AUTHOR]

This paper uses tools from the classical theory of inflation for UK Consumer Price Inflation from 1970Q1 to 2017Q4. In particular, we adopt augmented Phillips curve type equations within a linear and regime-switching framework where regimes are governed by previous inflation rates. Our non-linear models show that a monetary explanation of inflation is prominent during periods of high inflation. However our models imply that during periods of high inflation, The Bank of England should monitor monetary conditions in conjunction with monetary policy stance; as these can help dampen inflation persistence. [ABSTRACT FROM AUTHOR]

Objective: Foreign direct investment (FDI) is an important determinant of development. Thus, identifying the main drivers of investment is critical especially for emerging markets. The main aim of the article is to verify factors influencing FDI flows into Turkey. Research Design & Methods: Foreign investment can be affected by structural factors, such as growth and trade openness; stability factors, such as high fiscal deficits, inflation, and exchange rate changes; and global factors, such as the EU accession and the level of global liquidity. We examine the importance of these variables in affecting FDI flows into Turkey using quarterly data from 1992 to 2010 and cointegration and VECM methodology. Findings: We conclude that for Turkey (and perhaps other emerging markets) structural reforms that expand market size and trade opportunities yield more capital inflows than economic stabilisation efforts that address prices, exchange rates, and budget balances. Moreover, we find that during that period in Turkey, trade and investment were substitutes. Implications & Recommendations: Stabilisation efforts to control prices, exchange rates, and budgets matter, but not as much as structural reforms that impact market potential and trade flows. Contribution & Value Added: Previous literature generally finds that FDI and trade are complements in emerging countries. This was the case in Turkey as well in the eighties and early nineties. We show that the EU candidacy prospects have transformed the relationship between FDI and trade in Turkey. [ABSTRACT FROM AUTHOR]

We investigate the joint dynamics of oil prices, financial liquidity and geopolitical risk, within a multi-country global vector autoregressive model. We find that low oil prices are expected to trigger higher levels of geopolitical risk and that decelerating financial liquidity serves as an accelerator. [ABSTRACT FROM AUTHOR]

This paper analyzes why the global financial crisis in 2008 severely affected Asia's trade. Asia has been suffering from the falls in export demand from developed countries. However the abrupt trade declines in Asia are not fully explained by reactions to this as in previous experiences. The question is why the financial crisis in 2008 brought about the abrupt and deep collapse in world trade, while other world-wide recessions had more moderate effects on world trade. This paper shows that the dynamic relationship between trade and trade finance is one important factor in explaining this question. This paper also applies the Granger (causality) test to uncover different relationships in the developed and developing economies and show different results for different countries in Asia. We employ a Markov-Switching FAVAR (Factor Augmented VAR) to show that global liquidity shocks are important factors in explaining the huge and abrupt trade drops in Asia.

The paper explores the concept of global liquidity and its determinants, focusing on the banking system in advanced and emerging markets. We explore the implications of the interaction between liquidity and its local, global and financial markets determinants. We also analyze the global liquidity channels, i.e. whether foreign banks play a significant role in the country’s financial system. The study focuses on the investigation of banks’ liquidity determinants in 42 countries (advanced and emerging/developing countries) over the 2000–2011 period. The results show the significance of the differences in global liquidity depending on the country’s level of development. We find support to the conjecture that globalization and global banks’ leverage may convey some useful information on global liquidity. We also present an important observation that banks’ lending in advanced countries is shielded from the monetary policy because of their ability to freely access alternative sources of funds.

This paper examines the determinants of UK office market yields and their relative importance depending on overall monetary and financial conditions, with special attention given to the role of macroeconomic liquidity. To do so, we rely on a standard linear model as well as on non-linear one that allows for a transition between two possible regimes of liquidity conditions – accommodative or tight – both models accounting for possible trend reverting behaviour. The results of the study provide new insights to the discussion on property yield modelling. Whatever the type of modelling, linear or not, we find that in addition to its traditional drivers – notably risk-free interest rate and expected rental growth – money supply is a key factor of property yields. Moreover, depending on the evolution of the ratio of M2 to GDP, property yields evolve according to two regimes; in the one depicted as a normal liquidity regime, the property yields dynamics mainly obeys an error correcting mechanism which tends to counter excessive discrepancy between property yields and their fundamental value deduced from a Present Value type model, while in the second one, this mechanism is dominated by the impact of money supply growth which can induce increasing movements in the property prices, possibly turning to bubbles. [ABSTRACT FROM PUBLISHER]

This paper examines the effects of global liquidity expansion on advanced and emerging economies by using panel VAR methodology. The results show that global liquidity expansion tends to boost economy by increasing GDP growth and stock prices. However, we find that the effects are asymmetric. The effects of global liquidity on GDP and stock prices are greater and more persistent in emerging economies than in liquidity recipient advanced economies. Moreover, global liquidity appreciates emerging economies' exchange rates more persistently than those of advanced economies. Lastly, while global liquidity expansion increases foreign portfolio investment inflows to Asian countries and liquidity recipient advanced economies, there is no evidence for Latin American countries.

This study investigates the current account deficit (CAD) of Turkey from the perspective of its capital account. We discuss how global liquidity conditions and monetary policies in Turkey have contributed to higher deficits through real exchange rate appreciations. We analyze the impact and consequences of exchange rate (ER) changes on the investments of non-financial firms. In the case of real ER depreciations, we find that the magnitude of the contractionary effect through balance sheets of firms with dollarized liabilities is significantly higher than the expansionary effect through trade competitiveness. We also analyze the “soft-landing” policies aimed at reducing the CAD in Turkey and estimate the rate of economic growth that must be foregone for a percentage reduction in CAD. [ABSTRACT FROM AUTHOR]

Copyright of Ensayos Sobre Política Económica is the property of Banco de la Republica and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper presents the results of the study of endogenous development conditions of Ukraine describing the possibility of forming a long-term paradigm of economic development based on the sustainable investment climate of a strategic nature, which will be the mainstay of the shocks caused by the circulation of global liquidity.В работе представлены результаты исследования эндогенных условий развития Украины, характеризующих возможность формирования долгосрочной парадигмы развития экономики, основанной на устойчивом инвестиционном климате стратегического характера, который станет основой противодействия шокам, вызванным циркуляцией глобальной ликвидности.

With the latest financial crisis, interest in determining the role of the financial sector in the economy has revived. Within the literature that has addressed the issue, credit behavior has received special attention, given its strong association with events of financial crisis and periods of macroeconomic instability. This article concentrates on studying the behavior of credit cycles in Latin America, paying special attention to the existence of common factors in the behavior of these cycles and the association of these factors with the global liquidity conditions. The results reveal that about one-third of the credit cycle is explained by factors common to the countries under consideration, and that global liquidity shocks have effects on the credit cyclical common component in the region. [ABSTRACT FROM AUTHOR]

We examine the relationship between financial stress and global liquidity for the so-called fragile five emerging economies (Brazil, India, Indonesia, South Africa, and Turkey). By using an extensive set of variables that take into account the structural characteristics of these economies, we construct a financial stress index. We then use a Markov regime switching model to identify the high financial stress episodes. We examine periods of heightened financial stress and its relationship to high incidence of domestic and global disturbances. Finally, we construct a global financial liquidity index and assess the relationship between financial stress and global liquidity. Using a bivariate Markov regime switching VAR model, we find a regime-dependent relation between global liquidity and financial stress. Moreover, global liquidity shocks seem to strain these emerging economies in such a way that global illiquidity heightens financial stress. [ABSTRACT FROM PUBLISHER]