Mapping Extent of Spillover Channels in Monetary Space: Study of Multidimensional Spatial Effects of US Dollar Liquidity

Changrong Lu, Lian Liu (), Fandi Yu, Jiaxiang Li and Guanghong Zheng
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Changrong Lu: School of Economics, Nagoya University of Commerce and Business, Nisshin, Aichi 470-0193, Japan
Lian Liu: School of Management, Nagoya University of Commerce and Business, Nisshin, Aichi 470-0193, Japan
Fandi Yu: Graduate School of Asia-Pacific Studies, Waseda University, Tokyo 169-8555, Japan
Jiaxiang Li: Department of Economics, State University of New York at Binghamton, Binghamton, NY 13902, USA
Guanghong Zheng: Faculty of International Media, Communication University of China, Beijing 100024, China

IJFS, 2025, vol. 13, issue 2, 1-28

Abstract: This study aims to analyze the spatial effects triggered by dollar liquidity by constructing a multidimensional spatial matrix that modifies the traditional monetary spatial framework. We utilized a three-level spatial econometric model (Spatial Lag, Durbin, and Generalized Nested Space) to measure Gross Domestic Product (GDP), Consumer Price Index (CPI), and Asset Price Bubbles (BBL) through five spillover channels (geography, linguistics, politics, war, and economy). Our aim is to establish a systematic relationship between the conduction mechanism, means, economic indicators, and dollar externalities to examine liquidity spillover effects at varying distances in the global monetary space. We find that the spatial effects induced by the global circulation of the US dollar behave significantly differently in a single matrix space compared to in a multidimensional space. While the model verifies the existence of a positive correlation between the complexity of a single space and the spillover effect from a conduction mechanism perspective, the measure of the multidimensional matrix shows that the significance of the spillover effect weakens with an increase in abstraction level from a conduction means perspective. It suggests that spatial matrices of different dimensions reflect different economic realities. The former shows hierarchical multivariate details in independent matrices, while the variation in the level of abstraction of matrices of different dimensions in the latter enhances their interactivity and complexity.

Keywords: US dollar liquidity; spatial effects; monetary space; model identification; indirect spillover effects (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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