The Risk Sensitivity of Global Liquidity Flows: Heterogeneity, Evolution and Drivers

Stefan Avdjiev, Leonardo Gambacorta, Linda S. Goldberg and Stefano Schiaffi

No 20098, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the balance sheet (capital and leverage) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We document that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans to international debt securities was associated with a decline in the risk sensitivity of global liquidity flows to EME borrowers.

Keywords: Global; liquidity (search for similar items in EconPapers)
JEL-codes: F34 G10 G21 (search for similar items in EconPapers)
Date: 2025-04
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