Financial integration, global liquidity and global macroeconomic linkages

Abstract

Purpose – The purpose of this paper is to analyse the effect of financial integration on several macroeconomic variables from a global perspective. Design/methodology/approach – The authors apply a cointegrated vector autoregression model using quarterly data for 1980-2009. Analysing the interactions of globally aggregated measures capturing cross-border financial transactions, monetary liquidity, output, consumer and commodity prices, the authors focus on the dissection of short-run and long-run dynamics. Findings – The authors find that increasing financial integration has a positive impact driving GDP. The authors also find evidence of two-way causality between commodity prices and financial flows. The results suggest that commodity prices are driven by financial integration and the gap between the dynamics of commodity prices and financial flows is closed by global liquidity injected by central banks. Originality/value – The paper contributes to the empirical literature by analysing the overall impact of global financial integration and of global liquidity on global macroeconomic variables in a unified framework.

Modelling sectoral spillovers in the USA (1992–2015)

“…Of course, the dominance of sector 7 is also validated by the fact that this sector, based on the respective GIRFs, is not statistically significantly affected by unexpected/unanticipated unit shocks in the rest of the sectors, while a shock in the dominant sector seems to have a statistically significant effect on the majority of the US sectors. This is, in general terms, consistent with the work of Belke and Keil (2016), who argue that financial integration per se and therefore the financial sector in general affects the overall output of the economy.…”

Liquidity Dynamics in Bangladesh: Investigating the Impact of Selected Macroeconomic Indicators Using an ARDL-ECM Method

“…Economic policymakers will be able to predict the behaviour of the JUJBR selected macroeconomic variable when any change is observed in liquidity and vice versa. Belke and Keil (2016) found that financial integration drives the prices of the commodity. They also find that the break between financial flow and dynamics of the commodity prices is corrected by the global liquidity managed by central bank.…”

On the monetary measures of global liquidity

“…In this section, we follow Belke and Keil (2016), Giese and Tuxen (2007) and Beyer et al (2001) to construct monetary aggregates at regional and global levels. This procedure of aggregation involves the conversion of nominal GDP of all countries into a common currency using purchasing power parity (PPP) exchange rates.…”

“…where, g it is the growth rate of broad money of country i in time t and G t is the aggregate growth rate in time t. Some studies use year specific weights at this stage of aggregation because the data on GDP is generally available in annual frequency (Belke and Keil 2016;Belke et al 2014;Baks and Kramer 1999). We also use year specific weights at this step of aggregation.…”

“…Some other studies, following Beyer et al (2001), construct and utilize a monetary index of global liquidity by assigning weights to the growth rates of a country's monetary aggregate (like, M2, M3). The weights are assigned equal to the GDP share of the respective country in the group of sampled countries (Belke and Keil 2016;Belke et al 2010;Giese and Tuxen 2007). Another study employs factor models to construct a measure of global liquidity based on common factors of quantity and price-based indicators which include monetary aggregates, domestic and cross-border credit aggregates, retail lending rates, government bond yields, money market rates and stock market volatility (Eickmeier et al 2014).…”