Global Liquidity, Risk Premiums and Growth Opportunities

35 Pages Posted: 23 Mar 2009

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Iryna V. Ivaschenko

International Monetary Fund (IMF) - Research Department

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Date Written: March 2009

Abstract

This paper constructs new indicators of liquidity for equity, bond and money markets in major advanced and emerging market countries, documents their evolution and comovements, and assesses the extent to which such measures are determinants of selected spreads and proxy measures of countries' growth opportunities. Three main results obtain. First, there is evidence of an historical increase in market liquidity since the early 1990s, in part as a result of advances in international financial integration, but markets have been increasingly exposed to global systemic liquidity shocks. Second, liquidity indicators appear to be important determinants of bond spreads in advanced economies and EMBI spreads in emerging markets. Third, improvements in market liquidity have significant real effects, as liquidity indicators have a significant positive impact on proxy measures of countries' growth opportunities.

Keywords: Working Papers

Suggested Citation

De Nicolo, Gianni and Ivaschenko, Iryna, Global Liquidity, Risk Premiums and Growth Opportunities (March 2009). IMF Working Papers, Vol. , pp. 1-33, 2009. Available at SSRN: https://ssrn.com/abstract=1366182

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Iryna Ivaschenko

International Monetary Fund (IMF) - Research Department ( email )

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Washington, DC 20431
United States
202-623-4271 (Phone)

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