Global Liquidity through the Lens of Monetary Aggregates

Abstract

This paper examines how the financial activities of non-financial corporates (NFCs) in international markets potentially affects domestic monetary aggregates and financial conditions. Monetary aggregates reflect, in part, the activities of NFCs, who channel capital market financing into the domestic banking system, thereby influencing funding conditions and credit availability. Periods of capital inflows are also those when the domestic currency is appreciating, and such periods of rapid exchange rate appreciation coincide with increases in the central bank's foreign exchange reserves, increasing the stock of narrow money. The paper examines economic significance of crosscountry panel data on monetary aggregates and other measures of non-core bank liabilities. Non-core liabilities that reflect the activities of NFCs reflect broad credit conditions and predict global trade and growth.

The effect of reducing quantitative easing on emerging markets

“…Unlike Chung et al (2014) who used a combination of developed and developing countries to examine the relationship between certain bank liability aggregates and global financial conditions, we select, in this article, a sample of five emerging economies: Brazil, India, Turkey, Tunisia and South Africa. These countries are chosen because they have experienced substantial exchange rate depreciation against the US dollar, especially after the announcement of the Fed's intention to reduce its QE3 policy.…”

The next financial crisis

“…19 Much of this nonresident foreign-currency borrowing is by the foreign subsidiaries of domestic banks, which means that dollar liabilities are flowing through the most fragile part of the economy, namely the financial system, which renders emerging market banks that much more vulnerable to global liquidity shocks. 20 Thus, whereas the problem of currency mismatch was caused historically by offshore foreign-currency borrowing by sovereigns, now it is mainly the work of corporations, financial corporations in particular. That, of course, does not imply he absence of risk to the government's balance sheet.…”

The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions

“…20 See IMF (2013) and Chen et al (2015). 21 Different concepts of global liquidity have been discussed in detail in Chung et al (2014), Cerruti, Claessens and Ratnovski (2014), and IMF (2013c, 2014e). countries are analyzed in various groupings or aggregations based on income levels depending on analytical needs.…”

“…To conduct formal empirical analysis, we are guided by the following analytical framework. We define a time-series regression model (following Ahmed and Zlate (2013), Cerutti (2014), Chung et al (2014) ) to assess the impact of QE/UMPMs on global liquidity measures:…”