Understanding Global Liquidity

36 Pages Posted: 12 Apr 2013

See all articles by Sandra Eickmeier

Sandra Eickmeier

Deutsche Bundesbank

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 2013

Abstract

We explore the concept of global liquidity based on a factor model estimated using a large set of financial and macroeconomic variables from 24 advanced and emerging market economies. We measure global liquidity conditions based on the common global factors in the dynamics of liquidity indicators. By imposing theoretically motivated sign restrictions on factor loadings, we achieve a structural identification of the factors. The results suggest that global liquidity conditions are largely driven by three common factors and can therefore not be summarised by a single indicator. These three factors can be identified as global monetary policy, global credit supply and global credit demand.

Keywords: global liquidity, monetary policy, credit supply, credit demand, international business cycles, factor model, sign restrictions

JEL Classification: E5, E44, F3, C3

Suggested Citation

Eickmeier, Sandra and Gambacorta, Leonardo and Hofmann, Boris, Understanding Global Liquidity (February 2013). BIS Working Paper No. 402, Available at SSRN: https://ssrn.com/abstract=2247910

Sandra Eickmeier (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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