global excess liquidity and asset prices in emerging countries a pvar approach pdf

Global Excess Liquidity And Asset Prices In Emerging Countries A Pvar Approach Pdf

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On the monetary measures of global liquidity

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Global excess liquidity and asset prices in emerging countries: a pvar approach

The purpose of this paper is to investigate the impact of foreign capital shifts on economic activities and asset prices in South Korea. The authors in this paper apply the Bayesian threshold vector autoregressive TVAR model to estimate the regimes of large and low inflows of foreign capital. Then, structural impulse-response analysis is used to check whether the responses of the variables differ across the estimated regimes. The model is estimated using quarterly data of foreign capital inflows, gross domestic product GDP , consumer price index, credit to the private non-financial sector, real effective exchange rate REER , stock returns and house prices. The main findings suggest that large inflows of gross foreign capital, foreign direct investments FDI and foreign portfolio investments FPI are ineffective to boost economic growth, but large inflows of other foreign investments OFIs significantly contribute to GDP. The decreases in the foreign capital inflows are associated with larger depreciation of REER.

Global liquidity has been more and more important in the last couple of years and everbody from media to policy makers are talking about it. In order to shed light on the effects of global liquidity, we investigate the impact of global liquidity expansion on major macroeconomic variables of G-7 countries by using panel vector autoregressive PVAR model and four different global liquidity indicators. We find that our data is non-stationary, there is cross sectional dependence and no cointegration relationship exits. Impulse response results show that an increase in global liquidity lowers government bond yields and has very limited effect on output, inflation and real exchange rate. Additionally, global liquidity explains up to 10 percent of the variation in government bond yields.

Metrics details. The atheoretical measures exploited by this study comprise of the simple-sum, GDP-weighted growth rates and PCA based aggregation methods; whereas theoretical measures include the currency equivalent and Divisia index techniques of monetary aggregation. We employ a graphical approach to investigate the trends and dynamics of the aggregates overtime, and a cross-correlation between cyclical components of global real economic activity and the lag of cyclical components of the measures of global liquidity to gauge the strength of their associations. The findings of this study reveal that theoretical measures outperform atheoretical ones in effective delineation of financial and liquidity conditions, and policy stance. Their cyclical components are also strongly associated with those of global real business activity. The currency equivalent measure, besides being a leading indicator of the shift in policy stance, has a sturdy association with global real business activity. Moreover, the theoretical measures, as noted by some empirical studies, contain some information content that the atheoretical lack.

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In particular, it could have contributed to strong capital inflows in emerging countries, which may have had a significant impact on financial stability in these countries, affecting domestic financing conditions and creating a risk of upward pressures on asset prices. We focus in this paper on the impact of global excess liquidity on good and asset prices for a set of emerging market countries by estimating a panel VAR model. We define first global liquidity and highlight situations of excess liquidity. We then find that excess liquidity at the global level has spillover effects on output and price level in emerging countries. The impact on real estate and commodity prices in emerging countries is less clear.

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Global excess liquidity and asset prices in emerging countries: a pvar approach. The documents may come from teaching and research institutions in France or abroad, or from public or private research centers. Introduction Measures of global excess liquidity The impact of global excess liquidity on emerging economies Empirical analysis Conclusion. Variance decompositions: percent of variation of the row variable explained by the excess liquidity variable. Global excess liquidity indicators Figure 3: Impulse responses to a liquidity shock moy Figure 3: Impulse responses to a liquidity shock elim0.

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