Money as a global phenomenon

Viac o knihe

The significant rise in international financial integration has notably shaped the global economy in recent decades, with capital flows between countries experiencing dramatic increases. This raises the question of whether money has become a global phenomenon due to financial globalization. Excessive money growth in one nation may spill over into others, leading to synchronized increases in monetary aggregates across various countries. Consequently, a global liquidity force emerges, impacting domestic macroeconomic and financial variables. This work employs various econometric approaches for the G7 countries and the EMU, including the estimation of a global Structural Factor Augmented VAR model. It finds that common money supply shocks significantly affect real GDP, prices, short-term interest rates, and house prices worldwide. Innovations in the common money supply also provoke notable reactions in domestic variables such as broad money, economic activity, CPI, and residential property prices. These effects are particularly pronounced in the US and euro zone rather than in smaller open economies. Evidence suggests that global excess liquidity may have contributed to the surge in US house prices prior to the recent financial crisis, challenging traditional monetary transmission mechanisms. This indicates that national variables like short-term interest rates and money supplies may not be the only channels through which central