Asymmetric Effects of Global Liquidity Expansion on Foreign Portfolio Inflows, Exchange Rates, and Stock Prices

This paper examines the effects of global liquidity expansion on advanced and emerging economies by using panel VAR methodology. The results show that global liquidity expansion tends to boost economy by increasing GDP growth and stock prices. However, we find that the effects are asymmetric. The ef...

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Bibliographic Details
Published in:East Asian economic review 2014, 18(2), 47, pp.143-161
Main Authors: Rhee, Dong-Eun, Yang, Da Young
Format: Article
Language:English
Subjects:
Commodities
Economic crisis
Economic growth
Emerging markets
Equity
Expansion
Federal Reserve monetary policy
Foreign exchange rates
Foreign Portfolio Investment Inflows
GDP
Global Liquidity
Globalization
Gross Domestic Product
Interest rates
International finance
International Monetary Transmission Mechanism
Liquidity
Portfolio investments
Prices
Quantitative Easing
Special drawing rights
Stock prices
Studies
경제학
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Summary:This paper examines the effects of global liquidity expansion on advanced and emerging economies by using panel VAR methodology. The results show that global liquidity expansion tends to boost economy by increasing GDP growth and stock prices. However, we find that the effects are asymmetric. The effects of global liquidity on GDP and stock prices are greater and more persistent in emerging economies than in liquidity recipient advanced economies. Moreover, global liquidity appreciates emerging economies' exchange rates more persistently than those of advanced economies. Lastly, while global liquidity expansion increases foreign portfolio investment inflows to Asian countries and liquidity recipient advanced economies, there is no evidence for Latin American countries.
ISSN:2508-1640
2234-8867
2508-1667
2287-8793
DOI:10.11644/KIEP.JEAI.2014.18.2.278