Global Liquidity and Drivers of Cross-Border Bank Flows

26 Pages Posted: 10 May 2014 Last revised: 10 Jun 2014

See all articles by Eugenio Cerutti

Eugenio Cerutti

International Monetary Fund (IMF); Johns Hopkins University

Stijn Claessens

Bank for International Settlements (BIS)

Lev Ratnovski

International Monetary Fund

Multiple version iconThere are 3 versions of this paper

Date Written: June 9, 2014

Abstract

This paper studies the determinants of global liquidity using data on cross-border bank flows, with a longer time series and broader country sample than previous studies. We define global liquidity as non-price determinants of cross-border credit supply, consistent with its meaning as the “ease of financing” in international financial markets. We find that global liquidity is driven primarily by uncertainty (VIX), US monetary policy (term premia), and UK and Euro Area bank conditions (proxied by leverage and TED spreads). This expands on previous studies by highlighting non-US drivers of global liquidity, and is consistent with the dominant role of European banks in cross-border lending. We also show that borrowing countries can limit their exposures to global liquidity fluctuations through better macro frameworks, capital flows management tools, and more stringent bank regulation.

Keywords: Global Liquidity, International Banking, Capital Flows

JEL Classification: F21, F34, G15, G18, G21, G28

Suggested Citation

Cerutti, Eugenio and Claessens, Stijn and Ratnovski, Lev, Global Liquidity and Drivers of Cross-Border Bank Flows (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2434629 or http://dx.doi.org/10.2139/ssrn.2434629

Eugenio Cerutti

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Stijn Claessens

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
+1 202 623 8213 (Phone)

HOME PAGE: http://ratnovski.googlepages.com

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