Does global liquidity matter for monetary policy in the Euro area?
Berger, Helge ;  Harjes, Thomas ;  Universität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft

Main titleDoes global liquidity matter for monetary policy in the Euro area?
AuthorBerger, Helge
AuthorHarjes, Thomas
InstitutionUniversität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft
No. of Pages23 S.
Series Diskussionsbeiträge des Fachbereichs Wirtschaftswissenschaft ; 2008/13 : Volkswirtschaftliche Reihe
KeywordsGlobal excess liquidity, euro area, inflation, monetary policy, interest rate channel, forecasting accuracy
Classification (DDC)337 International economics
339 Macroeconomics and related topics
Also published in
AbstractGlobal excess liquidity roaming the world’s financial markets (or its sudden absence) is sometimes believed to limit sovereign monetary policy even in large economies such as the euro area. However, there is still discussion about what constitutes global excess liquidity and how exactly it shapes the policy environment. Our approach adjusts liquidity for longerterm interest rate and output effects and focuses on U.S. and Japanese liquidity as relevant proxies for global developments from a euro area perspective. We find that both excess liquidity in Japan and, in particular, the U.S. tend to lead developments in euro area liquidity. U.S. excess liquidity also enters consistently positive as a determinant of euro area inflation and is shown to be Granger-causal for euro area inflation in an out-of-sample forecasting exercise. In part, this result seems to be related to a weakening of the euro area interest rate channel during times of excessive U.S. liquidity. In contrast, the influence of Japanese and euro area excess liquidity on euro area inflation is more limited.
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FU DepartmentDepartment Business and Economics
Other affiliation(s)Lehrstuhl für Geldtheorie und Geldpolitik
Year of publication2008
Type of documentBook
Terms of use/Rights Nutzungsbedingungen
Created at2009-08-04 : 12:51:37
Last changed2014-01-23 : 04:20:10
Static URLhttp://edocs.fu-berlin.de/docs/receive/FUDOCS_document_000000002821