1 / 32

“INTERNATIONAL LIQUIDITY, MONETARY SPILLOVERS AND ASSET PRICES”

“INTERNATIONAL LIQUIDITY, MONETARY SPILLOVERS AND ASSET PRICES”. Daniel Borja & Daniel Goyeau. Summary. International Liquidity  Asset Prices U.S., Euro Area & ASEAN 5 Quarterly Data: 1995 to 2005 Liquidity Definition U.S.  Reciprocal Effects  Euro Area

edison
Télécharger la présentation

“INTERNATIONAL LIQUIDITY, MONETARY SPILLOVERS AND ASSET PRICES”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. “INTERNATIONAL LIQUIDITY, MONETARY SPILLOVERS AND ASSET PRICES” Daniel Borja & Daniel Goyeau

  2. Summary • International Liquidity  Asset Prices • U.S., Euro Area & ASEAN 5 • Quarterly Data: 1995 to 2005 • Liquidity Definition • U.S.  Reciprocal Effects  Euro Area • ASEAN 5: No Spillover Effect

  3. Presentation Structure • Introduction • Liquidity Definition • Methodology • Results and Findings • Conclusion

  4. Liquidity and Asset Prices • Tenuous Link? Effect of Financial Globalization  Greater Synchronization of Markets  Monetary Spillover

  5. What is Liquidity? • Two Concepts of Liquidity, Baks and Kramer (1999) • Market Liquidity • Monetary Liquidity • Money growth • Excess money growth

  6. What is Liquidity? • Various Measures of Excess Liquidity, ECB (2001) • Nominal money gap and real money gap • Monetary overhang/shortfall • Based on Quantity Theory of Money, Gouteron, et al (2005) • M + V = P + Y

  7. What is Liquidity? • International Liquidity Ratio, Filho (2002) • The ratio of the net foreign reserves against the net foreign interest-bearing debt • Crucial liquidity ratio • International Liquidity, Caballero, et al.(2000 & 2001) • Collateral • Precautionary Reserves • Liquidity-based model of domestic interest rate determination

  8. What is Liquidity? • Macro and Micro-based Measures, Fernandez (1999) • Aggregate measures • Excess liquidity: monetary aggregate growth • Credit available • Degree of Leverage • Micro-based • Depth • Breadth • Resiliency

  9. Liquidity Definition • Problems with micro-based measures • Problems with “asset-debt” ratio • International Liquidity: EXCESS MONEY GROWTH

  10.  Liquidity and Asset Prices • Excess Liquidity | • Increases Demand for a Fixed Supply of Assets | • Asset Price Inflation *Baks and Kramer (1999)

  11.  Liquidity and Asset Prices Improving Economic Prospects Excess Liquidity Asset Price Inflation *Baks and Kramer (1999)

  12.  Liquidity and Asset Prices • Excess Liquidity | • Decrease in the Discount Rate | • Asset Price Inflation *Baks and Kramer (1999)

  13. International Liquidity Channels Push Channel Excess Liquidity Seek Out Foreign Markets Foreign Asset Price Inflation Pull Channel Excess Liquidity Attract Foreign Capital Depress Foreign Asset Price

  14. Dataset • U.S., Euro Area and ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) • Quarterly Data: 1995 to 2005 • M1, M3, real and nominal GDP, short-term interest rates, share price indices, consumer price indices and exchange rates

  15. Data • Growth rates • Local currency into USD or euros • ASEAN 5 DATA • Simple Sum • Weighted Growth Series

  16. Data • Excess Money Growth • Quarterly money growth minus quarterly growth rate of nominal GDP • Real Returns • Share price returns/short-term interest rate minus consumer price inflation

  17. Money Growth Rates

  18. Excess Money Growth Rates

  19. Money Growth Rates • Correlated: ASEAN 5 simple sum and weighted growth rates series • Money growth rates for ASEAN are more volatile • Excess money growth rates for Euro area are more volatile

  20. First Regression Form R i, t = c + A(L)mi, t + B(L)mj, t + C(L)m k, t + D(L)v i, t + ε i, t where: R i, t = real stock return m = money growth of markets i, j and k v i, t = velocity of money

  21. Velocity of Money • Ratio of nominal GDP and broad money(M3) • Significant change in money velocity in the three areas during this period

  22. Monetary Spillover Regression R i, t = c + aRi, t-1 + B(L)xmi, t + C(L)ri, t + D(L)yi, t + E(L)pi, t + F(L)vi, t + G(L)xmj, t + H(L)xmk, t + ε i, t where: R i, t = real stock return xmi, t = excess money growth ri, t = real short-term rate yi, t = real gdp growth (USD) pi, t = inflation rate vi, t = velocity of money

  23. Results • Results using narrow money are more robust than the regression results using broad money • Regressions for the ASEAN 5 using a weighted series and simple summations gave similar results

  24. Money growths of the three markets are not statistically significant US Real Market Return

  25. Euro area money growth is significant Euro Area Real Market Return

  26. ASEAN 5 money growth is significant ASEAN 5 Real Market Return

  27. US Real Market Return • Inflation is statistically significant • Money velocity remains significant • Evidence of a push channel from Euro area to the US

  28. Euro Area Real Market Return • Real GDP growth and Euro area excess M1 growth are statistically significant • Spillover: Push of money from US to the Euro area

  29. ASEAN 5 Real Market Return • Real GDP growth and ASEAN 5 excess M1 growth are statistically significant

  30. Findings • Liquidity Spillovers: US and Euro area • Same economic standing ≈same monetary policies • ASEAN 5: autonomous from excess international liquidity • Emerging Market • US domestic excess liquidity insignificant

  31. Conclusion • Local excess liquidity • Euro and ASEAN 5 : consistent with expectations • US market: why? • Spillover effects • Euro area and US market: reciprocal effects • ASEAN 5: no spillover effect

  32. END OF PRESENTATION

More Related