Oecd amro s1 02_bis mr feng zhu


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2nd OECD-AMRO Asian Regional Roundtable

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Oecd amro s1 02_bis mr feng zhu

  1. 1. Restricted 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.
  2. 2. Restricted 2 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
  3. 3. Restricted 3 Global official liquidity: the great monetary easing
  4. 4. Restricted 4 Global private liquidity: credit to the private sector As a percentage of GDP; unweighted averages
  5. 5. Restricted 5 Global spillovers: transmission channels?
  6. 6. Restricted 6 Global bank credit aggregates By borrower region, at constant end-Q4 2012 exchange rates
  7. 7. Restricted 7 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
  8. 8. Restricted 8 Growth in international claims Year-on-year rate
  9. 9. Restricted 9 Growth rates of cross-border claims on EM residents In per cent
  10. 10. Restricted 10 Bond issuance By original maturity
  11. 11. Restricted 11 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?
  12. 12. Restricted 12 Announcement effects of Federal Reserve QE
  13. 13. Restricted 13 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
  14. 14. Restricted 14 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 Percent 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 Percent 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 PercentPoint Foreign Exchange Pressure risk term
  15. 15. Restricted 15 Market impact of Bank of Japan announcement In per cent
  16. 16. Restricted 16 Federal Reserve QE tapering: Global equity prices and volatility
  17. 17. Restricted 17 VIX volatility and EME equity and bond fund flows
  18. 18. Restricted 18 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