Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses

Woon Gyu Choi, Taesu Kang, Geun-Young Kim and Byongju Lee

No 2017/222, IMF Working Papers from International Monetary Fund

Abstract: This paper distills and identifies global liquidity (GL) momenta from the macro-financial data of advanced economies through a factor model with sign restrictions as policy-driven, market-driven, and risk averseness factors. Using a panel factor-augmented VAR, we investigate responses of emerging market economies (EMEs) to GL shocks. A policy-driven liquidity increase boosts growth in EMEs, elevating stock prices and currency values, while a risk averseness rise has an opposite effect. A market-driven GL expansion boosts stock markets and lowers funding costs, promoting competitiveness and current account. Inflation targeting EMEs fare better than EMEs under alternative regimes with respect to macrofinancial volatility.

Keywords: WP; inflation targeting; GL shock; GL momenta; GL factor; GL expansion; GL metrics; Global Liquidity; Panel Factor-Augmented VAR; GL impact; Liquidity; International liquidity; Central bank policy rate; Asset prices; International reserves; Global (search for similar items in EconPapers)
Pages: 31
Date: 2017-10-30
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Citations: View citations in EconPapers (31)

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Related works:
Journal Article: Global liquidity transmission to emerging market economies, and their policy responses (2017)
Working Paper: Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses (2014)
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