Determinants of Global Liquidity Dynamics:a FAVAR approach

Marie-Louise Djigbenou ()
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Marie-Louise Djigbenou: Larefi, Université de Bordeaux

No 1404, Larefi Working Papers from Larefi, Université Bordeaux 4

Abstract: Global liquidity, which consists of both monetary liquidity (quantitative easing and traditional policies) and funding liquidity, follows specific dynamics. The importance of these dynamics is re?ected by the growing interest in international policy fora in the economic efects and determinants of this phenomenon. This paper contributes to this evolving policy debate by capturing the determinants of global liquidity dynamics. To this end, I employ a Factor-Augmented VAR model, with potential explanatory vari- ables based on Augmented-Taylor rules and private determinants. Using data from 1990 to 2011, I find that the factors representing real activity and financial stability are the main determinants of global liquidity dynamics. The impact of these factors is however heterogeneous across pre and post crisis periods.

Keywords: Global liquidity; Ofcial liquidity; Funding liquidity; Quantitative easing; Monetary policy; Factor Model; Financial stability (search for similar items in EconPapers)
JEL-codes: G01 G38 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-04
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