A Study On The Spillover Effects Of Global Liquidity's Expansion On Emerging Market Economies

In December 2015,the US Federal Reserve raised its benchmark interest rate for the first time in seven years,marking the beginning of America's withdraw from its ultra-loose monetary policy.Initially,the Federal Reserve's rate hike was slow and did not catch public attention.However,the two consecutive interest rate hikes in early 2017 caused a huge blow to global financial markets.The Federal Reserve being the driving force of global liquidity,does an adjustment of its policy indicate a rapid contraction of global liquidity?As a key indicator of macroeconomic development,global liquidity has an impact on the stability of international financial markets via factors such as total credit,asset prices and market interest rates.Studying global liquidity dynamics helps to determine the state of the global financial system and analyze its spillover effects on other countries,especially emerging market economies(EMEs)whose financial systems lack stability.The EMEs,therefore,can make appropriate policies in advance to avoid the possible negative impacts of future liquidity fluctuations.In the absence of a unanimous definition for global liquidity within the academia,this thesis measures the dynamics of global liquidity over the past three decades from the perspective of quantity and price and analyzes its results in combination with the actual economic situation.As a matter of fact,global liquidity dominated by developed economies had been in an unstable expansion before the Federal Reserve's interest rate hike,which had a huge impact on EMEs.Based on the Panel-VAR model,the thesis studies the spillover effects of global liquidity's expansion on EMEs as a whole and the BRICS countries,and discusses the transmission mechanisms of global liquidity in these countries.With our empirical analysis,the thesis draws the following conclusions:Firstly,global liquidity has indeed experienced a slow decline recently,but there is no tendency for it to shrink sharply in the short term.In fact,global liquidity is still relatively loose.Secondly,the comparison between global liquidity's quantity indicator and its price indicator shows that capital markets are more sensitive to monetary policies.Thirdly,the spillover effects of global liquidity's expansion on EMEs as a whole are less obvious,and are mainly through the "push" mechanism of the asset price mechanism.The expansion of global liquidity will raise the price of assets in EMEs.Finally,unlike the situation in which EMEs are affected as a whole,the spillover effects of global liquidity's expansion on the BRICS countries are more obvious and direct.In addition,the money supply mechanism and output mechanism dominate the process of transmission.The expansion of global liquidity will prompt the BRICS countries to follow the developed countries' loose monetary policy,resulting in a decline in domestic lending rates,an increase in currency in circulation and an increase in output in the short term.