IDEAS home Printed from https://ideas.repec.org/p/bok/wpaper/1523.html
   My bibliography  Save this paper

The Effects of Global Liquidity on Global Imbalances

Author

Listed:
  • Marie-Louise DJIGBENOU-KRE

    (Banque de France and University Montesquieu Bordeaux IV)

  • Hail Park

    (Economic Research Institute, The Bank of Korea)

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.

Suggested Citation

  • Marie-Louise DJIGBENOU-KRE & Hail Park, 2015. "The Effects of Global Liquidity on Global Imbalances," Working Papers 2015-23, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1523
    as

    Download full text from publisher

    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2015-23.pdf
    File Function: Working Paper, 2015
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mr. Il Houng Lee & Woon Gyu Choi, 2010. "Monetary Transmission of Global Imbalances in Asian Countries," IMF Working Papers 2010/214, International Monetary Fund.
    2. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
    3. Martin Feldstein, 2008. "Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 113-125, Summer.
    4. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    6. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
    7. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
    8. Michael Ehrmann & Marcel Fratzscher, 2009. "Global Financial Transmission of Monetary Policy Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 739-759, December.
    9. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
    10. Kazi, Irfan Akbar & Wagan, Hakimzadi & Akbar, Farhan, 2013. "The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries," Economic Modelling, Elsevier, vol. 30(C), pages 90-116.
    11. Eickmeier, Sandra & Gambacorta, Leonardo & Hofmann, Boris, 2014. "Understanding global liquidity," European Economic Review, Elsevier, vol. 68(C), pages 1-18.
    12. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
    13. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
    14. Mr. Akito Matsumoto, 2011. "Global Liquidity: Availability of Funds for Safe and Risky Assets," IMF Working Papers 2011/136, International Monetary Fund.
    15. Straub, Roland & Barnett, Alina, 2008. "What drives U.S. current account fluctuations?," Working Paper Series 959, European Central Bank.
    16. Cooper, Richard N., 2006. "Living with global imbalances: A contrarian view," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 615-627, September.
    17. Joseph Gagnon, 2012. "Global imbalances and foreign asset expansion by developing-economy central banks," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 168-185, Bank for International Settlements.
    18. Kyuil Chung & Soyoung Kim & Hail Park & Changho Choi & Hyun Song Shin (ed.), 2014. "Volatile Capital Flows in Korea," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-36876-8, December.
    19. Hyun Song Shin, 2012. "Global Banking Glut and Loan Risk Premium," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 155-192, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. DJIGBENOU-KRE, Marie-Louise & Park, Hail, 2016. "The effects of global liquidity on global imbalances," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 1-12.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    3. Kim, C., 2011. "Global balance and financial stability: twin objectives toward a resilient global economic system," Financial Stability Review, Banque de France, issue 15, pages 61-72, February.
    4. Galariotis, Emilios C. & Makrichoriti, Panagiota & Spyrou, Spyros, 2016. "Sovereign CDS spread determinants and spill-over effects during financial crisis: A panel VAR approach," Journal of Financial Stability, Elsevier, vol. 26(C), pages 62-77.
    5. Huber, Florian & Punzi, Maria Teresa, 2017. "The shortage of safe assets in the US investment portfolio: Some international evidence," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 318-336.
    6. Gustav A. Horn & Heike Joebges & Torsten Niechoj & Christian R. Proaño & Simon Sturn & Silke Tober & Achim Truger & Till van Treeck, 2009. "Von der Finanzkrise zur Weltwirtschaftskrise (I)," IMK Report 38-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Chee-Hong Law & Chee-Lip Tee & Wei-Theng Lau, 2019. "The Impacts of Financial Integration on the Linkages Between Monetary Independence and Foreign Exchange Reserves," International Economic Journal, Taylor & Francis Journals, vol. 33(2), pages 212-235, April.
    8. Choi, Woon Gyu & Kang, Taesu & Kim, Geun-Young & Lee, Byongju, 2017. "Global liquidity transmission to emerging market economies, and their policy responses," Journal of International Economics, Elsevier, vol. 109(C), pages 153-166.
    9. Punzi, Maria Teresa & Chantapacdepong, Pornpinun, 2017. "Spillover Effects of Unconventional Monetary Policy in Asia and the Pacific," ADBI Working Papers 630, Asian Development Bank Institute.
    10. Vivekanand Jayakumar, 2010. "The coming unwinding of global imbalances and what it means for India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(2), pages 189-212.
    11. Mesut Turkay, 2018. "Does International Liquidity Matter For G-7 Countries? A PVAR Approach," International Econometric Review (IER), Econometric Research Association, vol. 10(1), pages 1-13, April.
    12. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Insurance Policy Thresholds for Economic Growth in Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(3), pages 672-689, July.
    13. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Governance, capital flight and industrialisation in Africa," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-22, December.
    14. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "Foreign Aid and Inclusive Development: Updated Evidence from Africa, 2005–2012," Social Science Quarterly, Southwestern Social Science Association, vol. 98(1), pages 282-298, March.
    15. Tchamyou, Vanessa S. & Erreygers, Guido & Cassimon, Danny, 2019. "Inequality, ICT and financial access in Africa," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 169-184.
    16. Ouyang, Yaofu & Li, Peng, 2018. "On the nexus of financial development, economic growth, and energy consumption in China: New perspective from a GMM panel VAR approach," Energy Economics, Elsevier, vol. 71(C), pages 238-252.
    17. Simplice A. Asongu & Nicholas Biekpe, 2018. "Globalization and terror in Africa," International Economics, CEPII research center, issue 156, pages 86-97.
    18. Simplice A. Asongu & Jacinta C. Nwachukwu, 2018. "Increasing Foreign Aid for Inclusive Human Development in Africa," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(2), pages 443-466, July.
    19. Lips, Johannes, 2018. "Debt and the Oil Industry - Analysis on the Firm and Production Level," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181504, Verein für Socialpolitik / German Economic Association.
    20. Uchenna Efobi & Simplice Asongu & Ibukun Beecroft, 2018. "Aid, Terrorism, and Foreign Direct Investment: Empirical Insight Conditioned on Corruption Control," International Economic Journal, Taylor & Francis Journals, vol. 32(4), pages 610-630, October.

    More about this item

    Keywords

    Global liquidity; Global imbalances; Panel-VARX; US monetary shock; Spillover effect;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F30 - International Economics - - International Finance - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bok:wpaper:1523. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Economic Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/imbokkr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.