Global Liquidity and Asset Prices: Measurement, Implications, and Spillovers

by Charles Frederick Kramer

Much recent commentary suggests that global liquidity has importantly influenced financial conditions in the major international markets, and that excess liquidity in one financial center can influence financial conditions elsewhere.2 For example, it has been suggested that ample global liquidity compressed risk premia during the run-up to the 1998 turbulence, and that carry trades are increasingly used to shift liquidity among financial centers.3 The relationship of liquidity to asset prices has been extensively studied in a domestic context, but it has been little studied in an international context. In a world where capital is increasingly mobile and can be readily deployed internationally, it is important to consider the extent to which changes in monetary conditions in one major country may be associated with changes in monetary and financial conditions elsewhere."

68 pages, ebook

First published December 1, 1999