The Drivers And The Transmission Of Global Liquidity: Through The Monetary Policiy And Risk-perception Channel

First,this paper studies the definition of the global liquidity and argues that the global liquidity is the common factor that determines the ease of international finance of different econmies.Based on this definition,the paper establishes a framework to measure the quantity of the global liquidity.The paper applies this framework into the quarterly data between 1998 and 2014,showing that the quantity of the global liquidity had a "contractionary effect" after the global financial crisis.The paper also finds that the global liquidity is mainly created by the private sector and the domestic credit and the cross-border credit of commercial banks have significant co-movement among the G4 economies.Second,this paper builds a model based on the endogenous risk perception,which describes the micro games between the debtors and creditors in the private sector and explains the endogenous mechanism among the leverage,the interest rate and the risk perception.This model assumes that financial intermediaries make the investment decisions on account of the risk perception instead of the real risk.As the risk perception is subjective and volatile,the financial intermediaries' expection of the investment demand will in turn influence the risk perception.The model builds the bridge between the private liquidity and the official liquidity and explains how the monetary policy is able to drive the risk perception of the financial intermediaries and financial circle under the assumption of equity exogeneity,the effectiveness of the money market and the existence of public information.While the assumption of public information is relaxed,the model can explain that accommodative stance of monetary policy during the expansion period or bubble period of the financial cycle could enlarge the diviation between the financial cycle and the real economy cycle,thus creating the systemic risk of the financial market.Allowing the free trade and the free capital flow,the model can explain that the monetary policies of the reserve currency issuers can influence the risk perception of the financial intermediaries in other economies through the cross-border transmission channel of the risk perception.Afterwards,the paper applies the theoretical hypotheses into the case studies and empirical analyses on the reserve currency issuers and the emerging economies,thus testing the hypotheses.Firstly,by the descriptive statistics,the paper reviews the process of financial liberalization in the U.S.and the evolution of the transmission channel of the U.S.monetary policy.The paper finds that,with the process of financial liberalization,the monetary policy of the U.S.had the decreasing impact on the aggregated demand while financial variables like asset price,credit growth and risk perception became more sensitive to the adjustment of the U.S.monetary policy.The paper divides the financial cycle of the U.S.between 1990 and 2015 into 5 different phases,finding that the reason why the U.S had experienced the "bubble——crisis——re-bubble——re-crisis" spiral may have to do with the long-term accommodative stance of the FED from 1995 to 2004.Secondly,based on the quarterly data between 1990 and 2008,the paper applies multiple linear regressions to test the driving effect of the U.S.monetary policy on the risk perception of the international financial market,finding that the accommodative stance of monetary policy during the expansion phase and the bubble phase of the financial cycle could weaken the self-stablizing function of the financial market.Based on the quarterly data between 2000 and 2014,the paper applies VAR method to test the spill-over effect of the global risk perception on the financial cycles of different economies and simultaneously verifies the spill-over effect of the U.S.monetary policy on the global financial cycle.Thirdly,by the descriptive statistics,the paper reviews the evolution of China's financial cycle after the global financial crisis.The paper argues that China's financial cycle has shifted from the bubble phase to the "quasi-crisis" phase,with the decreasing credit growth and the rising excess credit and the risk perception of commercial banks.The "quasi-crisis" phase has not ended yet.To the contrary,since the 4th quarter of 2014,China' s financial cycle has shown the sign of"re-bubble" and "re-crisis",with the credit growth recovering and the risk perception of commercial banks hiking.Fourthly,the paper finds the significant co-movement of the scales of the excess credit among the major emerging economies,which implies that there exists the common drivers behind the financial cycles of different economies.The paper analyizes the evolution of the cross-border capital flow of the G4 and the BRIICS,arguing that the global liquidity has the "contractionary effect" in its total amount and the " substitutional effect" in its allocation.The " substitutional effect"stimulates cross-border capital flow of China and other emerging ecomies,which has been the important common external condition faced by these economies.Fifthly,based on the quarterly panel data between the 2nd quarter of 2011 and the 3rd quarter of 2015,the paper applies dynamic panel model and verifies that the global risk perception has the significant positive impact on the risk perception of China's commercial banks with a 2-quarter lag.On average,one-standard-diviation change of VIX can explain 0.24-stand-diviation change of the provision for impairment of the loans of China's commercial banks.Based on the daily data between 2010 and 2015,the paper applies state space model,finding that the global risk perception has had the significant and the growing positive impact on the risk perception of domestic A-share investors since Augest 2014.Based on both theoretical and empirical analyses,this paper argues that China has to prepare policies to moderate the inward spill-over effect of the global liquidity in order to achieve financial stability.The paper studies the domestic policy options for China,arguing that,however,none of financial account policies,monetary policies and macroprudential policies could be effective in shor term at least.The paper argues that it could be a feasible way that China actively participates in the multilateral cooperation on global financial governance so as to improve the external financial environment.The paper gives detailed suggestions on the "4+1"coordination mechanism among the systemically important central banks and on the separation of the triple functions of the IMF quota.