The risk sensitivity of global liquidity flows: heterogeneity, evolution and drivers

Stefan Avdjiev (), Leonardo Gambacorta (), Linda S. Goldberg () and Stefano Schiaffi ()
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Stefan Avdjiev: Bank for International Settlements
Leonardo Gambacorta: Bank for International Settlements
Linda S. Goldberg: Federal Reserve Bank of New York
Stefano Schiaffi: Bank of Italy

No 973, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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 (capital and liquidity) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We show that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet (capital and leverage) constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans towards international debt securities was associated with a decline in the risk sensitivity of global liquidity flows and their main components.

Keywords: global liquidity; international bank lending; international bond flows; emerging markets; advanced economies (search for similar items in EconPapers)
JEL-codes: F34 G10 G21 (search for similar items in EconPapers)
Date: 2025-10
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