benoît cœuré, global liquidity and international risk

Global liquidity and international risk- sharing in the post-crisis environment Bank of Korea International Conference 2013 Seoul 3 June 2013

Benoît Cœuré, Member of the Executive Board European Central Bank

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Global liquidity and macro factors

2

Source: Eickmeier, Gambacorta and Hofmann (2013), Figure 4(a).

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The role of global liquidity factors in shaping global financial dynamics

3

Source: Eickmeier, Gambacorta and Hofmann (2013), Figure 4(b).

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Limited spillovers from the Fed’s QE policies so far

4

Non-standard monetary policy measure

Domestic long-term bond yields

Domestic equity prices

Global equity prices

EME equity prices

Exchange rate VIX

QE1 -100bp +25% +20% +7% 0 (effective) (-)

QE2 0 +10% +12% +15% -2% (effective) (-)

QE3 - +1.5% -1.8% (against euro) -1.3pp

Sources: Fratzscher, Lo Duca and Straub (2012), and ECB compilations.

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Estimated cumulated impact of US QE on equity flows to emerging markets (in % of assets under management)

Pull factors have been important for capital flows

Source: Fratzscher, Lo Duca and Straub (2012).

-5

0

5

10

15

20

25

30

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10

Monetary Policy

Other Factors

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Long cycles in financial globalisation

6

0%

50%

100%

150%

200%

250%

1870 1900 1914 1930 1938 1945 1960 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011

Foreign assets of major economies (in % of sample GDP)

Sources: Obstfeld and Taylor (1994), IMF and ECB calculations. Notes: Data from 1870 to 2000 are from Obstfeld and Taylor (1994) and refer to the UK, France, Germany, Netherlands, United States, Canada, Japan and “other Europe”. Data for 2000 to 2011 refer to IMF data for the same countries, excluding “other Europe”.

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The geography of wealth transfer before and after the global financial crisis

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US external debt and equity (in % of GDP)

Source: Gourinchas, Rey and Govillot (2012).

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Financial fragmentation within the euro area

Sources: Tesoro and Banca d’Italia.

8

Non-resident holdings of government debt securities

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“Home bias” during periods of deleveraging

Sources: IMF, World Bank and ECB calculations. Notes: The country sample refers to advanced economies including Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, Netherlands, Portugal, Spain, Sweden, the United Kingdom and the United States. .

9

y = 0.64x + 197.74R² = 0.315

0

100

200

300

400

500

600

700

0 100 200 300 400 500

International lending

Domestic lending

Average change (2000 - 2007)

y = 1.1866x - 14.873R² = 0.524

-50

-40

-30

-20

-10

0

10

20

30

40

-20 -10 0 10 20 30 40

International lending

Domestic lending

Average change (2008 - 2011)

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The changing correlation of saving and investment

Sources: IMF and ECB calculations.

10

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Financial openness at risk?

Source: Chinn and Ito (2006 and 2013).

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-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.619

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

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Index of capital account openness for emerging markets (normalised score, averages)

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Gradual reduction of US dollar positions of European banks

Source: Bank for International Settlements.

Gross and net US dollar positions of European banks (US dollar billions)

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Deleveraging of euro area banks in Asia

Source: BIS consolidated banking statistics (immediate borrower basis). Notes: 1 Sum of all cross-border claims and locally extended claims in foreign currency. 2 Intra-regional share is the sum of international claims on the emerging Asia-Pacific region of banks headquartered in Chinese Taipei, Hong Kong SAR, India, Singapore, and outside-area banks (assuming these are headquartered in Asia).

Credit to emerging Asia-Pacific

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benoît cœuré, global liquidity and international risk

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