Asymmetric Effects of Global Liquidity Expansion on Foreign Portfolio Inflows, Exchange Rates, and Stock Prices
Journal of East Asian Economic Integration Vol. 18, No. 2 (June 2014) 143-161
19 Pages Posted: 1 Jul 2014 Last revised: 7 Nov 2016
Date Written: June 30, 2014
This paper examines the effects of global liquidity expansion on advanced and emerging economies by using panel VAR methodology. The results show that global liquidity expansion tends to boost economy by increasing GDP growth and stock prices. However, we find that the effects are asymmetric. The effects of global liquidity on GDP and stock prices are greater and more persistent in emerging economies than in liquidity recipient advanced economies. Moreover, global liquidity appreciates emerging economies’ exchange rates more persistently than those of advanced economies. Lastly, while global liquidity expansion increases foreign portfolio investment inflows to Asian countries and liquidity recipient advanced economies, there is no evidence for Latin American countries.
Keywords: International Monetary Transmission Mechanism, Global Liquidity, Foreign Portfolio Investment Inflows, Quantitative Easing
JEL Classification: E51, F32, F42
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