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U.S. Monetary Policy as a Changing Driver of Global Liquidity
International capital flows channel large volumes of funds across borders to both public and private sector borrowers. As they are critically important for economic growth and financial stability, understanding their main drivers is crucial for both policymakers and researchers. In this post, we explore the evolving impact of changes in U.S. monetary policy on global liquidity.
The shifting drivers of global liquidity
The post-crisis period has seen a considerable shift in the composition and drivers of international bank lending and international bond issuance, the two main components of global liquidity. The sensitivity of both types of flows to U.S. monetary policy rose substantially in the immediate aftermath of the global financial crisis, peaked around the time of the 2013 Federal Reserve ?taper tantrum,? and then partially reverted toward pre-crisis levels. Conversely, the responsiveness of international bank lending to global risk conditions declined considerably after the crisis and became similar ...