Financial integration, global liquidity and global macroeconomic linkages
Abstract
Purpose
The purpose of this paper is to analyse the effect of financial integration on several macroeconomic variables from a global perspective.
Design/methodology/approach
The authors apply a cointegrated vector autoregression model using quarterly data for 1980-2009. Analysing the interactions of globally aggregated measures capturing cross-border financial transactions, monetary liquidity, output, consumer and commodity prices, the authors focus on the dissection of short-run and long-run dynamics.
Findings
The authors find that increasing financial integration has a positive impact driving GDP. The authors also find evidence of two-way causality between commodity prices and financial flows. The results suggest that commodity prices are driven by financial integration and the gap between the dynamics of commodity prices and financial flows is closed by global liquidity injected by central banks.
Originality/value
The paper contributes to the empirical literature by analysing the overall impact of global financial integration and of global liquidity on global macroeconomic variables in a unified framework.
Keywords
Acknowledgements
JEL Classification — C32, E44, E52
The authors are grateful for valuable comments by Joscha Beckmann and conference participants at the Annual Conference of the Western Economic Association International, the Paris Financial Management Conference and the Annual Conference of the International Network for Economic Research.
Citation
Belke, A. and Keil, J. (2016), "Financial integration, global liquidity and global macroeconomic linkages", Journal of Economic Studies, Vol. 43 No. 1, pp. 16-26. https://doi.org/10.1108/JES-02-2015-0026
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited