Global Liquidity: Availability of Funds for Safe and Risky Assets

June 1, 2011

Preview Citation

Format: Chicago

Akito Matsumoto. Global Liquidity: Availability of Funds for Safe and Risky Assets, (USA: International Monetary Fund, 2011) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

What is global liquidity and how does it affect an economy? The paper addresses that question by looking at liquidity from two different perspectives: global liquidity as availability of funds in safe and risky asset markets. This distinction between safe and risky asset markets is important due to market segmentation, which called for unconventional monetary policy to restore a function of risky asset markets. To analyze the effect of global liquidity, I construct proxy variables and then asses how they affect an emerging economy whose interest rate is affected by a world risk-free rate and a risk premium. Using the data from four major Latin American countries, I find that these two aspects of global liquidity have similar effects on economic performance in emerging market economies except for their effect on inflation.

Subject: Asset and liability management, Exchange rates, Foreign exchange, International liquidity, Liquidity, Liquidity indicators, Liquidity management, National accounts, Return on investment

Keywords: Emerging economy, Exchange rates, Global, Global liquidity, Inflation targeting, International liquidity, Latin America, Liquidity, Liquidity condition, Liquidity injection, Liquidity management, Liquidity measure, Liquidity shock, Return on investment, Risk premium, Unconventional monetary policy, World risk-free rate, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/136
Stock No:

WPIEA2011136
ISBN:

9781455264452
ISSN:

1018-5941

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