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The Credit Composition of Global Liquidity

Helmut Herwartz (), Christian Ochsner and Hannes Rohloff ()
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Helmut Herwartz: University of Goettingen
Hannes Rohloff: University of Goettingen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: We conceptualize global liquidity as global monetary policy and credit components by means of a large-scale dynamic factor model. Going beyond previous work, we decompose aggregate credit components into credit supply and demand flows directed at businesses, households and governments. We show that this decomposition enhances the understanding of global liquidity considerably. Whereas global government sector credit supply is best understood as a safe-haven lending factor from an investors perspective, lenders supply the businesses and households with credit to maximize profits along the financial cycle. Moreover, the government sector demands credit in times of bust-episodes, whereas private entities demand credit in times of booms. In particular, we find that our global credit estimates explain substantial variance shares of a large panel of international financial aggregates.

Keywords: global liquidity; credit composition; financial cycle; dynamic factor model (search for similar items in EconPapers)
JEL-codes: C32 C38 E32 E44 E51 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2021
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-mon
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Working Paper: The credit composition of global liquidity (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202115

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