Global Liquidity: Availability of Funds for Safe and Risky Assets

Matsumoto, Akito

doi:10.5089/9781455264452.001

Cited by 34 publications

(22 citation statements)

References 30 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…(seasonally adjusted) plus total foreign exchange reserves excluding gold (Chinn, 2011;Matsumoto, 2011) Further variables included in the empirical analysis are nominal GDP (Y_G) and the consumer price index CPI (CPI_G) on a global level. We also include the nominal effective exchange rate of the US dollar (USD_EER) to account for dollar valuation effects, and data on exports of emerging and developing economies (EX_EC) 12 to the rest of the world as proxies for demand driven impulses for the development of commodity and food prices, which are represented by indices of the Commodity Research Bureau (CRB).…”

Section: Data Description and Aggregation Of The International Liquidmentioning

confidence: 99%

Effects of Global Liquidity on Commodity and Food Prices

2012

View full text Add to dashboard Cite

show abstract

Section: Data Description and Aggregation Of The International Liquidmentioning

confidence: 99%

Effects of Global Liquidity on Commodity and Food Prices

2012

View full text Add to dashboard Cite

show abstract

“…Indeed, Favero and Giavazzi (2008), among others, have shown that the Eurozone economies are deeply affected by global conditions and Andritzky (2012) argues that the strong increase in global risk aversion following the subprime financial crisis may have pushed foreign investors to retract from advanced financial markets. In addition, the inclusion of the VIX variable in the SVAR enables to control for time variations related to the global crisis period, as it proxies uncertainty and global liquidity (Matsumoto, 2015).…”

Section: Empirical Testsmentioning

confidence: 99%

Increase in home bias in the Eurozone debt crisis: The role of domestic shocks

2016

View full text Add to dashboard Cite

Abstract:One of the most striking consequences of the recent episode of sovereign debt market stress in the Eurozone has been the increase in the share of public debt held by the domestic sector in fragile economies. However, the causes and potential consequences of this increase were only given scarce attention in the literature on the Euro area sovereign debt crisis. In order to fill this gap, we first identify the shocks that impact the variation in the share of sovereign debt held at home in an SVAR model on a sample of Eurozone countries between 2002 and 2014, distinguishing between external and domestic shocks. Thanks to several alternative tests, we show that home bias in sovereign debt responds positively to country-specific fundamentals and expectations shocks but we find no evidence that the increase in home bias is destabilizing per se in the short-run. Second, a stylized theoretical model backed by the empirical results predicts that the consequences for sovereign debt crisis depend on the relative impact of domestic initial destabilizing shocks and increased home bias. The analysis suggests that an increase in home bias in times of sovereign debt stress, despite reflecting deteriorating fiscal conditions, may make default less likely. Keywords:Eurozone, Sovereign debt crisis, Home bias, Bayesian panel SVAR JEL codes:Increase in home bias in the Eurozone debt crisis: the role of domestic shocks *Abstract: One of the most striking consequences of the recent episode of sovereign debt market stress in the Eurozone has been the increase in the share of public debt held by the domestic sector in fragile economies. However, the causes and potential consequences of this increase were only given scarce attention in the literature on the Euro area sovereign debt crisis. In order to fill this gap, we first identify the shocks that impact the variation in the share of sovereign debt held at home in an SVAR model on a sample of Eurozone countries between 2002 and 2014, distinguishing between external and domestic shocks. Thanks to several alternative tests, we show that home bias in sovereign debt responds positively to country-specific fundamentals and expectations shocks but we find no evidence that the increase in home bias is destabilizing per se in the short-run. Second, a stylized theoretical model backed by the empirical results predicts that the consequences for sovereign debt crisis depend on the relative impact of domestic initial destabilizing shocks and increased home bias. The analysis suggests that an increase in home bias in times of sovereign debt stress, despite reflecting deteriorating fiscal conditions, may make default less likely. JEL classification: E4, E5, F3, G15.Keywords: Eurozone, Sovereign debt crisis, Home bias, Bayesian panel SVAR. * We thank Stephan Sauer, Andrea Bonilla Bolaños, Aurélien Eyquem, Nicolas Houy, Bruno Ziliotto, as well as participants at the 11th Infiniti Conference, the 11th Macrofi workshop, the 2nd Finandebt Conference, the 63rd AFSE Conference and the 2nd Lyon-Tur...

show abstract

“…Neumeyer and Perri (2005) is an early paper showing that sovereign spreads in EMEs behave in a countercyclical manner, which is what subsequent work shows. 5 The effect of global risk aversion on EMEs' economic fluctuations have also been highlighted by Matsumoto (2011) and Carrière-Swallow and Céspedes (2013); although, these papers are silent on its effect on country spreads. On the effects of global factors on EMEs' sovereign spreads, Arora and Cerisola (2001), González-Rozada and Levy-Yeyati (2008), and Ciarlone et al (2009) show that EMEs' sovereign spreads depend negatively on global financial conditions, such as U.S. interest rates, U.S. high-yield corporate spreads, and the volatility of U.S. stock prices, respectively.…”

Section: Introductionmentioning

confidence: 99%

On Corporate Borrowing, Credit Spreadsand Economic Activity in Emerging Economies: An Empirical Investigation

Caballero

Fernández

2016

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed. Terms of use: Documents inAny dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license. This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in foreign capital markets, and its relationship with economic activity is examined. Results show that the indicator has considerable predictive power on future economic activity. Furthermore, an identified adverse shock to the financial indicator generates a large and protracted fall in real output growth, and about a third of its forecast error variance is associated with this shock. These findings are robust to controlling for possible spillovers from sovereign to corporate risk, among other considerations.JEL classifications: E32, E37, F34, F37, G15

show abstract

Global Liquidity: Availability of Funds for Safe and Risky Assets

Cited by 34 publications

References 30 publications

Effects of Global Liquidity on Commodity and Food Prices

Effects of Global Liquidity on Commodity and Food Prices

Increase in home bias in the Eurozone debt crisis: The role of domestic shocks

On Corporate Borrowing, Credit Spreadsand Economic Activity in Emerging Economies: An Empirical Investigation

Contact Info

Product

Resources

About