Abstract
This paper examines how global liquidity responds to a US (United States) monetary policy shock, and whether global liquidity has effects on global imbalances. To this end we estimate regression and Panel-VARX models using data from the G5 (US, United Kingdom, Euro area, Japan and Canada) and 20 emerging countries. The empirical results show that global liquidity is meaningfully affected by a US monetary shock, and that the effects on global imbalances of global liquidity are significant. The foreign exchange reserves of emerging economies are also found to play a significant role related to global imbalances.
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