DOES INTERNATIONAL LIQUIDITY MATTER FOR G-7 COUNTRIES? A PVAR APPROACH

Year 2018, , 1 - 13, 16.04.2018

Mesut Türkay

https://doi.org/10.33818/ier.336895

Cited By: 1

Abstract

Global liquidity has been more and more
important in the last couple of years and everbody from media to policy makers
are talking about it. In order to shed light on the effects of global
liquidity, we investigate the impact of global liquidity expansion on major
macroeconomic variables of G-7 countries by using panel vector autoregressive
(PVAR) model and four different global liquidity indicators. We find that our
data is non-stationary, there is cross sectional dependence and no
cointegration relationship exits. Impulse response results show that an
increase in global liquidity lowers government bond yields and has very limited
effect on output, inflation and real exchange rate. Additionally, global
liquidity explains up to 10 percent of the variation in government bond yields.
Our model results imply that the impact of global liquidity on the
macroeconomic variables of G-7 countries is not very striking as some other
studies suggest. 

Keywords

global liquidity, panel vector autoregressive, impulse responses

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