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The shifting drivers of global liquidity

Stefan Avdjiev (), Leonardo Gambacorta (), Linda Goldberg () and Stefano Schiaffi

No 644, BIS Working Papers from Bank for International Settlements

Abstract: The post-crisis period has seen a considerable shift in the composition and drivers of international bank lending and international bond issuance, the two main components of global liquidity. The sensitivity of both types of flow to US monetary policy rose substantially in the immediate aftermath of the Global Financial Crisis, peaked around the time of the 2013 Fed "taper tantrum", and then partially reverted towards pre-crisis levels. Conversely, the responsiveness of international bank lending to global risk conditions declined considerably post-crisis and became similar to that of international debt securities. The increased sensitivity of international bank flows to US monetary policy has been driven mainly by post-crisis changes in the behaviour of national lending banking systems, especially those that ex ante had less well capitalized banks. By contrast, the post-crisis fall in the sensitivity of international bank lending to global risk was mainly due to a compositional effect, driven by increases in the lending market shares of better-capitalized national banking systems. The post-2013 reversal in the sensitivities to US monetary policy partially reflects the expected divergence of the monetary policy of the US and other advanced economies, highlighting the sensitivity of capital flows to the degree of commonality of cycles and the stance of policy. Moreover, global liquidity fluctuations have largely been driven by policy initiatives in creditor countries. Policies and prudential instruments that reinforced lending banks' capitalization and stable funding levels reduced the volatility of international lending flows.

Keywords: Global liquidity; international bank lending; international bond flows; capital flows (search for similar items in EconPapers)
JEL-codes: G10 F34 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ifn, nep-mac, nep-mon and nep-opm
Date: 2017-06
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Working Paper: The shifting drivers of global liquidity (2017) Downloads
Working Paper: The shifting drivers of global liquidity (2017) Downloads
Working Paper: The Shifting Drivers of Global Liquidity (2017) Downloads
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