oecd amro s1 02_bis mr feng zhu
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Global Liquidity, cross-border flows, and
QE spillovers
Feng ZHU (Bank for International Settlements)
Singapore, 19 July 2013
Disclaimer: views expressed belong to the author alone and do not reflect those of the BIS.
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Outline
Crisis, unconventional monetary easing and expanding global
official liquidity
Recent developments in cross-border banking flows: global
private liquidity
Spillovers to EMEs of QE in advanced economies
Policy implications
Macro and financial stability
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Global official liquidity: the great monetary easing
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Global private liquidity: credit to the private sector As a percentage of GDP; unweighted averages
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Global spillovers: transmission channels?
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Global bank credit aggregates By borrower region, at constant end-Q4 2012 exchange rates
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Cross-border flows: some recent developments
Cross-border claims fell in 2012 Q4 by $345 bn (1.2% Q/Q)
Sharp decline in cross-border interbank lending ($467 bn,
2.6%) offset higher cross-border credit to non-banks
Borrowers in adv. economies (US, Europe) most affected
Claims on EM borrowers rose ($43 bn, 1.4%), mostly on banks
Claims on Asia-Pacific rose most, China accounted for ½
Banks also expanded local operations in EMEs
Cross-border bank lending
Far more volatile than other flows & domestic credit
Low interest rates globally
Corporations lock in cheap funding
Global interest rate risks
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Growth in international claims Year-on-year rate
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Growth rates of cross-border claims on EM residents In per cent
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Bond issuance By original maturity
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Spillovers to EMEs of QE in advanced economies
Chen, Filardo, He and Zhu (2011, 2013)
Does QE have significant cross-border spillovers?
Announcement effects in financial markets
Global VAR: longer-term impact on economy
Can QE spillovers be harmful?
Business cycle in EMEs: growth and inflation
Financial cycles in EMEs: FX, capital flows, credit, asset
markets
Impact of QE Tapering and eventual exit?
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Announcement effects of Federal Reserve QE
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Global VAR: 2-year cumulative impact Impulse responses from US term spread (23 bps) and risk spread (28 bps)
• US QE has greater impact on a number
of emerging economies than on US
domestic economy
• US risk spread reduction tends to have
considerable expansionary impact on
most EMEs.
• Impact of US term spread shock weaker
and more diverse across countries
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Global VAR: 2-year cumulative impact Impulse responses from US term spread (23 bps) and risk spread (28 bps)
• Term Spread reduction leads to persistent
asset price boom, while boom after a risk
spread reduction is relatively short-lived.
• Risk spread tends to increase bank credit
and exert greater currency appreciation
pressure.
-6
-4
-2
0
2
4
6
8
UK US JP XM PH CN IN SG KR HK ID TH MY BR CL MX AR
Perc
ent
Bank Credit
risk
term
-20
-15
-10
-5
0
5
10
15
UK JP XM US MY KR TH SG IN CN HK PH ID CL AR MX BR
Perc
ent
Stock Price
risk
term
-15
-10
-5
0
5
10
15
20
25
30
US UK JP XM TH HK IN MY KR SG CN ID PH CL MX AR BR
Perc
ent P
oint
Foreign Exchange Pressure
risk
term
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Market impact of Bank of Japan announcement In per cent
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Federal Reserve QE tapering:
Global equity prices and volatility
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VIX volatility and EME equity and bond fund flows
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Conclusion
Financial and business cycles increasingly global: liquidity flows
around
Cross-border flows large and volatile, recently declined in
advanced economies but increased in most EMEs
QE in advanced economies had significant spillovers
Be ware of QE Tapering and … exit
Need to understand better the strength and channels of
transmission of QE (and its exit) to EMEs
Financial stability and macro-prudential tools
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