The Effects of Global Liquidity on Global Imbalances

25 Pages Posted: 24 Sep 2015 Last revised: 28 Oct 2015

Date Written: September 22, 2015

Abstract

This paper examines how global liquidity responds to a US (United States) monetary policy shock, and whether global liquidity has effects on global imbalances. To this end we estimate regression and Panel-VARX models using data from the G5 (US, United Kingdom, Euro area, Japan and Canada) and 20 emerging countries. The empirical results show that global liquidity is meaningfully affected by a US monetary shock, and that the effects on global imbalances of global liquidity are significant. The foreign exchange reserves of emerging economies are also found to play a significant role related to global imbalances.

Keywords: Global liquidity, Global imbalances, Panel-VARX, US monetary shock, Spillover effect

JEL Classification: E51, F30, F33

Suggested Citation

Djigbenou, Marie-Louise and Park, Hail, The Effects of Global Liquidity on Global Imbalances (September 22, 2015). Bank of Korea WP 2015-23, Available at SSRN: https://ssrn.com/abstract=2664373 or http://dx.doi.org/10.2139/ssrn.2664373

Marie-Louise Djigbenou (Contact Author)

Banque de France ( email )

Paris
France

Hail Park

Kyung-Hee University ( email )

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