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Global Liquidity and Drivers of Cross-Border Bank Flows

Eugenio Cerutti, Stijn Claessens () and Lev Ratnovski ()

No 10314, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the determinants of global liquidity using data on cross-border bank flows, with a longer time series and broader country sample than previous studies. We define global liquidity as non-price determinants of cross-border credit supply, consistent with its meaning as the “ease of financing” in international financial markets. We find that global liquidity is driven primarily by uncertainty (VIX), US monetary policy (term premia), and UK and Euro Area bank conditions (proxied by leverage and TED spreads). This expands on previous studies by highlighting non-US drivers of global liquidity, and is consistent with the dominant role of European banks in cross-border lending. We also show that borrowing countries can limit their exposures to global liquidity fluctuations through adapting their macro frameworks, capital flow management tools, and bank regulation.

Keywords: Capital Flows; Global liquidity; International Banking (search for similar items in EconPapers)
JEL-codes: F21 F34 G15 G18 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-opm
Date: 2014-12
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