Coursework sample：Dollar liquidity
It is well known that fluctuations in U.S.economic growth have a significant impact on world economic growth.It is generally believed that the us recession and growth affect other economies mainly through two channels,one is trade channel,the other is financial market channel.In terms of trade channels,the expansion of the us foreign trade deficit has become a major force affecting other countries' economies.Therefore,the dependence on the us trade is an important factor to determine the extent to which the country is affected by the us recession.As far as financial market channels are concerned,with the increasing financial correlation among countries,the price correlation of similar assets in each country is also increasing.Therefore,the more open a country's financial system is,the stronger the synchronous volatility between the country's financial market and the United States will be.Ayhan Kose and Christopher Otrok in order to quantify the global business cycle itself and its scope,set up two different dynamic factor model,one is annual model of 93 countries,one is the group of seven quarterly model,analysis shows that the United States and the European Union economic growth margin of spillover effects of trade partners completely correlation is consistent with its trade,and financial correlation is higher and the United States through spillover effect is bigger.Spillover effects in order to further study in the United States,the international monetary fund,the researchers will a country to trade volume share of American GDP ratio to measure the depth of the country's trade with the United States, through the analysis of the panel that the United States economic growth impact on economic growth in Latin American countries is quite significant,for new industrial countries and asean countries have obvious short-term impact.Alberto chon used the combined share of a country's foreign exchange assets and foreign exchange liabilities as a share of GDP,as well as the ratio of U.S.assets held to U.S.residents' debt and GDP to measure the depth of the country's financial ties to the United States,and analyzed the impact of U.S.GDP fluctuations on the country.
It can be found from the literature summarizing some event studies that,first of all,the impact of recession or growth in the United States on other economies is non-uniform,and different periods and countries will show great differences due to the initial conditions of economic growth,economic vulnerability and policy response at that time.In the 1980s,the us trade deficit was mainly reflected in the trade surplus with Japan and Germany.In the 1990s,the us trade deficit was mainly reflected in the trade surplus with emerging market countries.Since the 21st century,the us trade deficit is mainly reflected in the trade surplus with Asian countries,including China.The resulting trade deficit and surplus structure resulted in the corresponding country being affected by the us recession and growth much more than other countries and regions.Second,the spillover effect of us economic fluctuations is not only the trade channel and the financial channel,but also the cross channel between them.More importantly,it directly leads to the drastic fluctuations of global asset prices.Among them,the change of dollar liquidity plays a crucial role,which has mutual influence and self-enhancement mechanism with global economic cycle and global asset price cycle.
In this paper,the us dollar liquidity cycle as a basic analysis framework to analyze its spillover path to the global economy.The reason why this paper takes the dollar liquidity cycle as the breakthrough of the research is directly based on the logical evaluation of the inherent limitations of the existing research results,the analysis of the American economic structure marked by the high development of virtual economy and the functional absence of the arrangement of the contemporary international monetary system.First,the dollar liquidity cycle is the core and key to connect the global economic cycle and the global asset price cycle.Only by clarifying the characteristics of the dollar liquidity cycle can we better grasp the power source of the contemporary American economic cycle and the context of the global economic cycle.Secondly,the cyclical change of us dollar liquidity not only brings about significant adjustment of global capital flow pattern,but also brings about exchange rate instability,changes the world's price system of strategic commodity resources,and causes the volatility of equity asset prices.
As we all know,money has five functions:value measure,circulation means,storage means,payment means and world currency.Among them,the value measure and circulation means are the basic functions of money,the other three functions are successively appeared in the development of commodity economy.With the evolution of commodity economy,market economy and financial economy,many financial assets have monetary functions.As for which assets are so functional,James Tobin notes that this is determined by the underlying nature of such assets and the markets in which they are traded.To this end,he attributes these assets to liquidity,reversibility,separability,predictability of value,and return and return attributes.In particular,he emphasized that liquidity refers to the degree and speed of the realization of asset value.Whether an asset has a part of the function of money depends not only on the liquidity itself in this sense,but also on the combined performance of the above five characteristics.Only to a certain extent can the asset be"quasi-currency".It is precisely because there is no accurate measure of this composite performance that it is impossible to tell which assets belong to"quasi-currencies",so these"quasi-currencies"and currencies are collectively referred to as liquidity.
Based on the above liquidity meanings,liquidity can be divided into three levels,namely monetary liquidity,banking system liquidity and financial market liquidity,according to the entity creating liquidity, such as central bank,commercial bank and financial market.These three levels of liquidity are related to each other,forming a causal chain of monetary and financial influence on economic activities.Due to different research perspectives,the liquidity vectors selected by various literatures are quite different.The purpose of this study determines that the liquidity vector selected in this paper must satisfy three conditions.Second,the carrier has a strong influence on the financial market and even the macro economy or should have a good explanatory power in line with economics.Third,the data is available and quantifiable.
The us financial system has undergone profound changes since the 1990s.The continuous emergence of innovative financial instruments has greatly accelerated the liquidity of various financial assets,and the mutual substitutability between financial assets has increased.On the basis of monetary liquidity,the expansion of credit instruments has generated a larger amount of market liquidity,and the direct effect of money on the economy has given way to credit instruments.Homogeneity trend at the same time, financial business integration and financial institutions for the business between commercial Banks and non-bank financial institutions,boundaries become blurred,commercial bank lending more depend on the basis of the interbank market,the commercial paper market,and asset-backed securities, of various non-banking financial institutions also have traditionally only the function of the commercial Banks to create unique currency.Non-bank financial institutions,like commercial Banks,have become the most important financial institutions operating credit business in the United States.The total credit size of the two represents the overall credit level of the American credit market.Therefore,the connotation of the liquidity of the banking system and the channels affecting the liquidity of the financial market have also changed.
Based on the above understanding,the research institute of citic securities took the velocity of money circulation as the carrier to measure the liquidity of us dollar,and set the velocity of money circulation the growth rate of production in 32 industries+the inflation rate-the growth rate of money. Tobis Adrian and Hyun song sbin used the cumulative growth rate of financial institutions'balance sheets as a measure of dollar liquidity.Most literatures take M2 as the measure carrier of liquidity.The M3,which has been recommended in some literature,was excluded because the fed stopped publishing the data from March 2006 and lacked the availability of the data.
The indicators such as M2 and the sum of the total credit level of commercial Banks and financial institutions can meet the first and third conditions as liquidity carriers.This paper adopts the quarterly data of M2 growth rate and GDP growth rate published by the fed website database.The sample interval is from the first quarter of 1984 to the fourth quarter of 2009.After the single-root test,co-integration test and granger causality test,it is found that there is no obvious granger causality between M2 growth rate and GDP growth rate.It can be seen that the use of M2 as a us dollar liquidity carrier does not meet the second condition.
In order to investigate the granger causality between the total credit level of the us credit market and GDP,this paper selects 93 quarterly data of the growth rate of total credit size of American commercial Banks and financial companies and the growth rate of GDP.The sample range is from the second quarter of 1986 to the fourth quarter of 2009.
Compared with the change of federal interest rate of one of the monetary policy instruments of the federal reserve,it can be found that liquidity release has no obvious correlation with the reduction of the federal funds rate.Others are periods of higher interest rates and holding rates steady.From the comparison in figure 3,it can be seen that the fed's interest rate cut or interest rate hike is not the absolute factor determining the release of liquidity.
According to the traditional macroeconomic framework,the spillover effect of us economic growth is to affect other countries'economy through trade channels,financial channels and foreign investment. When we go deep into the level of us dollar liquidity,these three channels are only the manifestation of the spillover of us dollar liquidity cycle at the level of international economy and macro.Its overflow has the following properties:
In the cycle of dollar liquidity release,the price of us financial assets rises,resulting in a wealth effect that boosts private consumption spending,which in turn increases us demand for traded goods.Growth channels reflect the role of U.S.economic growth in the real economy of the rest of the world.During the period of inflation of financial asset prices caused by the release of dollar liquidity cycle,the foreign financial investment in the United States also showed cyclical changes.Figure 4 is a comparison between the total amount of us dollar liquidity,total amount of us import and total amount of foreign financial investment.
For further investigation of dollar liquidity and imports of U.S.trade and services as well as the relations between the United States foreign financial investment,about 1983 to 2009 dollar liquidity, imports of U.S.trade and services,and the United States foreign financial investment of co-integration analysis and granger causality analysis,to determine whether there is a long-term and stable relationship and the relationship between the before and after.The data use the first quarter of 1983 to the fourth quarter of 2009 for the three indicators published on the federal reserve website.
In the dollar liquidity cycle changes,international commodity futures trading prices also showed cyclical changes.To further clarify the relationship between us dollar liquidity and international commodity prices,we use CRB index as an indicator to observe international commodity prices.The CRB index has been adjusted ten times,and the weight of energy and precious metal prices has been relatively increased,which generally reflects the dynamic information of the world's major commodity prices.
The total credit size of commercial Banks and financial institutions in the United States as a measure of the liquidity performance of the dollar accurately and comprehensively reflect the tightness of the dollar liquidity.This index has the following characteristics.Firstly,it has a strong influence on the us financial market and even the macro economy and has a good explanatory power in line with economics. Secondly,the index data is available and quantifiable.Its periodic change and the periodic change of American economic growth have very strong phase;Fed rate cuts or rate hikes are not the absolute determinant of liquidity release.
The impact of us dollar liquidity spillover on international economy has growth property and inflation property.Therefore,the spillover effect of us economic growth can be better understood by grasping the dynamic changes of us dollar liquidity.